On the Size of the Active Management Industry / Lubos Pastor, Robert F. Stambaugh.

Format:

Book

Author/Creator:

Pastor, Lubos.

Contributor:

National Bureau of Economic Research.

Stambaugh, Robert F.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15646.

NBER working paper series no. w15646

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

We argue that active management's popularity is not puzzling despite the industry's poor track record. Our explanation features decreasing returns to scale: As the industry's size increases, every manager's ability to outperform passive benchmarks declines. The poor track record occurred before the growth of indexing modestly reduced the share of active management to its current size. At this size, better performance is expected by investors who believe in decreasing returns to scale. Such beliefs persist because persistence in industry size causes learning about returns to scale to be slow. The industry should shrink only moderately if its underperformance continues.

Notes:

Print version record

January 2010.