The Shift From Active to Passive Investing: Potential Risks to Financial Stability?

Anadu, Kenechukwu; Kruttli, Mathias S.; McCabe, Patrick E.; Osambela, Emilio; Shin, Chaehee

doi:10.2139/ssrn.3244467

Cited by 18 publications

(7 citation statements)

References 60 publications

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“…Changing climate is already part of the risk assessment of financial institutions and will be included in future stress tests (Anadu et al 2020). The European Commission (EC) established the High-Level Expert Group on Sustainable Finance (HLEG) in 2016 (Alqahtani and Mayes 2018;Kopp et al 2017;Buckmann et al 2021).…”

Section: Introductionmentioning

confidence: 99%

Financial stability role on climate risks, and climate change mitigation: Implications for green economic recovery

Sun

Fang

Iqbal

et al. 2022

Environ Sci Pollut Res

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As a response to the topic of how financial stability might be used to effectively finance for the mitigation of climate change and climate risks, it is important to look at the carbon risk that is still present in G-5 nations. The goal of our research is to determine the impact of financial stability on climate risk in order to effectively manage climate mitigation efforts. A technique called GMM is used to achieve this goal. Climate change mitigation was found to be substantial at 18 percent, while financial stability and carbon hazards were found significant at 21 percent, according to the conclusions of the study. Furthermore, the G-5 countries’ 19.5% correlation between financial stability and emissions drift, which raises climate change concerns, is noteworthy. In order to implement green economic recovery methods, one of the most strongly regarded approaches to mitigating climate change and ensuring long-term financial potential at the national scale, a country’s financial stability is required. The research on green economic expansion also offers the associated stakeholders with detailed policy implications on this relevance.

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Section: Introductionmentioning

confidence: 99%

Financial stability role on climate risks, and climate change mitigation: Implications for green economic recovery

Sun

Fang

Iqbal

et al. 2022

Environ Sci Pollut Res

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“…What are the reasons that investors prefer active managed funds? Anadu et al (2018) mentioned that active strategies give portfolio managers discretion to select individual securities, generally with the investment objective of outperforming a previously identified benchmark but over the past couple of decades, there has been a substantial shift in the asset management industry from active to passive investment strategies. The shift to passive investing is a global phenomenon.…”

Section: Literature Reviewmentioning

confidence: 99%

Profitability of Sector Mutual Funds and ETFs During Market Development and Length of Investment Horizon

Širůček¹,

Vystoupil²,

Strejček³

2018

FAI

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This paper focuses on the profitability of investments into IT, finance, healthcare and consumer goods oriented active and passive mutual funds and ETFs and their profit/loss in different market situations (growing, stagnant and decreasing markets).The aim of the paper is to set recommendations for investors as regards which instrument (active or passive mutual fund or ETFs) brings higher return or lower loss over the time and market development and if investors can expect different results based on the sector orientation, which sector is more sensitive to bullish or bearish trends. Our results show that neither ETF nor passive mutual funds were able to beat the market, as the sector index brings better results than these investments in all situations. Within bearish trend, all sector ETFs and passive mutual funds bring the same results as sector index, only active managed mutual funds bring better results. The lowest loss during this period was achieved by active managed mutual funds focusing on healthcare. Bullish and stagnant markets bring quite the same results, but passive funds and ETF are more profitable than active mutual funds in growing markets.

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“…Both types of approaches offer value to investors. However, in recent decades, there has been a sub-stantial shift in the asset management industry from active to passive investment strategies as many actively managed funds fail to outperform the market (Barber and Odean 2000;Anadu et al 2018).…”

Section: Introductionmentioning

confidence: 99%

Index Tracking with Cardinality Constraints: A Stochastic Neural Networks Approach

Zheng

Chen

Hospedales

et al. 2020

AAAI

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Partial (replication) index tracking is a popular passive investment strategy. It aims to replicate the performance of a given index by constructing a tracking portfolio which contains some constituents of the index. The tracking error optimisation is quadratic and NP-hard when taking the ℓ0 constraint into account so it is usually solved by heuristic methods such as evolutionary algorithms. This paper introduces a simple, efficient and scalable connectionist model as an alternative. We propose a novel reparametrisation method and then solve the optimisation problem with stochastic neural networks. The proposed approach is examined with S&P 500 index data for more than 10 years and compared with widely used index tracking approaches such as forward and backward selection and the largest market capitalisation methods. The empirical results show our model achieves excellent performance. Compared with the benchmarked models, our model has the lowest tracking error, across a range of portfolio sizes. Meanwhile it offers comparable performance to the others on secondary criteria such as volatility, Sharpe ratio and maximum drawdown.

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The Shift From Active to Passive Investing: Potential Risks to Financial Stability?

Cited by 18 publications

References 60 publications

Financial stability role on climate risks, and climate change mitigation: Implications for green economic recovery

Financial stability role on climate risks, and climate change mitigation: Implications for green economic recovery

Profitability of Sector Mutual Funds and ETFs During Market Development and Length of Investment Horizon

Index Tracking with Cardinality Constraints: A Stochastic Neural Networks Approach

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