Should Investors Join the Index Revolution? Evidence from Around the World

Journal of Asset Management, 21(3) (2020): 192-218

79 Pages Posted: 7 May 2020 Last revised: 18 May 2020

Date Written: April 2, 2020


Over the past fifteen years, passive investing has seen 1.5 trillion dollars of fund inflows while active investing has seen 500 billion of outflows. These numbers are in line with the tenets of passive investing, which assert it is close to impossible to consistently outperform the market. We therefore ask in this paper whether there are truly no viable alternatives to indexing and passive investing. We devise a simple actively-managed strategy based on a new version of the minimum variance portfolio that outperforms comparable stock indices around the world with on average 20.2% higher raw returns, 46.7% higher risk-adjusted returns, and 28.4% smaller drawdowns. Furthermore, it exhibits 32.4% lower portfolio turnover than the 1/N strategy of DeMiguel et al. (2009) around the world. Not only does this actively-managed portfolio have higher returns at lower risk (the well-known risk-return puzzle), it also displays higher returns at higher skewness levels (i.e. lower downside risk) and thus presents a novel skewness-return puzzle. Moreover, the portfolio also has lower recession risk. Our evidence thus suggests that the principles of passive investing should be questioned and that more effort in the actively-managed fund industry should be devoted to the exploration and application of similar strategies to overcome the industry's decades-long underperformance.

Keywords: passive investing, market efficiency, minimum variance portfolio, smart beta, portfolio management, international financial markets

JEL Classification: G11, G14, G15

Suggested Citation

Buehlmaier, Matthias M. M. and Wong, Keith Kit Pong, Should Investors Join the Index Revolution? Evidence from Around the World (April 2, 2020). Journal of Asset Management, 21(3) (2020): 192-218, Available at SSRN: or

Matthias M. M. Buehlmaier (Contact Author)

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong
+852 2219 4177 (Phone)
+852 2548 1152 (Fax)


Keith Kit Pong Wong

University of Hong Kong ( email )

Faculty of Business and Economics
University of Hong Kong
Hong Kong, Nil Nil
Hong Kong
(852) 2859-1044 (Phone)
(852) 2548-1152 (Fax)

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