FNCE 239 Lecture Notes - Lecture 16: Efficient-Market Hypothesis, Total Return, Investment Fund
21 Apr 2016
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3/24/16: lecture 16 notes: slow-moving capital: index investing. Standard capm advice: just hold the market, but we know the capm is false. Multifactor advice: if you think you are the same as the representative agent, just hold the market. Empirical fact: index funds outperform the typical actively managed fund. There is sense in that it is impossible to beat the market . So if one person outperforms the market, someone else must be underperforming. This simple math fact gives some insight into what makes models with asymmetric information work. Passive management- holding the market- using market cap weights. These definitions assume that active management has costs of gathering information and that passive management is free. As a result, we conclude that active managers as a whole must underperform the market (after costs: good traders can only outperform the market if bad traders who underperform the market exist.
