Fund Managers Still Don't Outperform
Fama and French have a new paper out on the ability of stock fund managers to outpredict the market. Short answer: no. In their words, 'we cannot reject the hypothesis that no fund managers have skill that enhances expected returns', even after adding back their explicit costs.
Alfred Cowels came out with a paper on stock market professional predictive ability back in 1933. His paper was titled 'Can Stock Market Forecasters Forecast?' His conclusion then: "It is doubtful". It is one of the seminal works of the Efficient Markets Hypothesis.
Active fund managers are still way more popular than passive funds. At least, fund manager commissions no longer have a 8.5% load as they did until the 1970's. Index funds really took off in the 1980's, but still only have about 20% of the market. It is interesting that after such a long, consistent documentation of the failure of mutual fund managers, most people prefer to pay extra to add the idiosyncratic risk of the fund to their equity allocation.
Alfred Cowels came out with a paper on stock market professional predictive ability back in 1933. His paper was titled 'Can Stock Market Forecasters Forecast?' His conclusion then: "It is doubtful". It is one of the seminal works of the Efficient Markets Hypothesis.
Active fund managers are still way more popular than passive funds. At least, fund manager commissions no longer have a 8.5% load as they did until the 1970's. Index funds really took off in the 1980's, but still only have about 20% of the market. It is interesting that after such a long, consistent documentation of the failure of mutual fund managers, most people prefer to pay extra to add the idiosyncratic risk of the fund to their equity allocation.
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