2018
DOI: 10.2469/faj.v74.n1.4
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Sharpening the Arithmetic of Active Management

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Cited by 53 publications
(18 citation statements)
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“…Passive portfolios need to deal with securities that are issued or repurchased, reinvest stock dividends and bond coupons, and other events that entail portfolio rebalancing. Since this trading can be costly for passive investors (Pedersen, 2018), we also use investable funds (mutual funds and ETFs) that incur these costs. Table 3 presents the statistics for their monthly returns in local currency during our sample period.…”
Section: Methodsmentioning
confidence: 99%
“…Passive portfolios need to deal with securities that are issued or repurchased, reinvest stock dividends and bond coupons, and other events that entail portfolio rebalancing. Since this trading can be costly for passive investors (Pedersen, 2018), we also use investable funds (mutual funds and ETFs) that incur these costs. Table 3 presents the statistics for their monthly returns in local currency during our sample period.…”
Section: Methodsmentioning
confidence: 99%
“…He acknowledges, however, that even a passive investor must trade twice, once to get into the position and once to get out, and these trades can provide an opportunity for active investors to gain from passive investors by providing liquidity (Sharpe (1991, footnote 4)). Second, Pedersen (2018) further points out that the “market” itself changes over time because new companies and shares are added, old shares are repurchased, and companies sometimes delist. Hence, passive investors also need to trade to track the market.…”
Section: Performancementioning
confidence: 99%
“…Institutions are sophisticated investors. If active investing is even approximately a negative sum game (Sharpe (1991), Pedersen (2018)), why did institutions delegate these assets to active managers? In this study, we analyze the performance of these delegated assets and find that the answer to this question is straightforward: Institutions earned positive alphas on the assets that they delegated to active strategies and they would not have done better managing passive strategies in‐house.…”
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confidence: 99%
“… See Sharpe (1991;Bogle (2005) andFrench (2008) among others. In addition,Pedersen (2018) provides evidence that the theoretical argument about active management being a zero-sum game does not hold in the real world.7 The reduced profitable opportunities are mainly due to increasing market efficiency(Bernstein, 1998;Chordia et al, 2008Chordia et al, , 2011Conrad et al, 2015) and increasing competition among fund managers(Dyck et al, 2013;Pástor et al, 2015;Hoberg et al, 2017).…”
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confidence: 99%