FIN 501 Lecture Notes - Lecture 9: Risk Premium, Active Management, Sharpe Ratio
20 Nov 2017
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Document Summary
Investors can either follow an active strategy or a passive strategy after they form their portfolio. Investors who choose passive management do not change the composition of their portfolio. Buy and hold strategy involves buying financial instruments, forming the portfolio, and then holding the chosen securities in the original percentage of the portfolio and not changing the composition of the portfolio. Another technique of passive portfolio management is buying shares of a market index fund that mimics a market index (e. g. , s&p/tsx composite index) and holding it. Investors do not pay transaction fees for frequent buying and selling. They also do not spend a lot of time gathering information to find underpriced securities. In contrast to passive management, active management involves changing the composition of portfolios. Some active managers follow market timing strategy. There are mutual fund managers who specialize in market timing.
