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WHY THE EFFICIENT MARKET OFFERS HOPE TO ACTIVE MANAGEMENT *
Author(s) -
Bernstein Peter L.
Publication year - 1999
Publication title -
journal of applied corporate finance
Language(s) - English
Resource type - Journals
eISSN - 1745-6622
pISSN - 1078-1196
DOI - 10.1111/j.1745-6622.1999.tb00014.x
Subject(s) - financial market , economics , financial economics , index fund , resolution (logic) , index (typography) , market efficiency , key (lock) , efficient market hypothesis , investment management , business , microeconomics , finance , institutional investor , incentive , computer science , corporate governance , open end fund , computer security , artificial intelligence , world wide web , paleontology , horse , stock market , biology
This article provides an interesting resolution of the paradox at the heart of efficient markets theory: namely, in financial markets that appear to be becoming ever more efficient, with fewer and fewer fund managers able to beat the S&P 500, why do investors engage in active trading? Why not index? The key to the author's defense of active management lies in its critique of economists' concept of “equilibrium prices.”