Financial Asset management: Many studies have shown that, onaverage, active fund managers do not beat...

Financial Asset management: Many studies have shown that, on average, active fund managers do not beat the market. Explain why this might be so.

Expert Solution

Taking past data into consideration, many passive investing index funds have outperformed or at par with Active Investment funds.

The benchmark with which Active managers compete is the National Stock markets Indices.

Stock Market Indices gives Beta Return.

Many portfolio managers can't even actively generate Beta. Active managers chasing for Alpha returns, mismanage the beta return.

While actively investing there is Emotional turbulence which makes many active managers to make wrong decisions. Hence generating lower returns than Beta.

Due to lack of understanding of active portfolio diversification into various industries, active portfolio managers and unable to obtain optimal diversification. Hence increasing their risk for the same amount of return.

Therefore, on average, active fund managers do not beat the market.

jeff jeffy answered 2 years ago

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