Related papers: Why Indexing Works
How an investor invests in the market is largely influenced by the market efficiency because if a market is efficient, it is extremely difficult to make excessive returns because in an efficient market there will be no undervalued…
We argue that an important contributing factor into market inefficiency is the lack of a robust mechanism for the stock price to rise if a company has good earnings, e.g., via buybacks/dividends. Instead, the stock price is prone to…
We investigate the impact of big winner stocks on the performance of active and passive investment strategies using a combination of numerical and analytical techniques. Our analysis is based on historical stock price data from 2006 to 2021…
We use the Grossman \& Stiglitz (1980) framework to build a reference portfolio for uninformed investors and employ this portfolio to assess the performance of actively managed equity mutual funds. We propose an empirical methodology to…
It has been widely observed that capitalization-weighted indexes can be beaten by surprisingly simple, systematic investment strategies. Indeed, in the U.S. stock market, equal-weighted portfolios, random-weighted portfolios, and other…
Portfolio management problems are often divided into two types: active and passive, where the objective is to outperform and track a preselected benchmark, respectively. Here, we formulate and solve a dynamic asset allocation problem that…
The paper analyses the increasing popularity of large funds in the secondary private equity market, which are pegged on the perceived larger scale advantages of operational efficiency and fewer manager relationships (Reuter & Zitzewitz,…
We study the role of active and passive investors in an investment market with uncertainties. Active investors concentrate on a single or a few stocks with a given probability of determining the quality of them. Passive investors spread…
We present an experimental and simulated model of a multi-agent stock market driven by a double auction order matching mechanism. Studying the effect of cumulative information on the performance of traders, we find a non monotonic…
Information coefficient (IC) is a widely used metric for measuring investment managers' skills in selecting stocks. However, its adequacy and effectiveness for evaluating stock selection models has not been clearly understood, as IC from a…
This note studies the behavior of an index I_t which is assumed to be a tradable security, to satisfy the BSM model dI_t/I_t = \mu dt + \sigma dW_t, and to be efficient in the following sense: we do not expect a prespecified trading…
We use multi-class machine learning classifiers to identify the stocks that outperform or underperform other stocks. The resulting long-short portfolios achieve annual Sharpe ratios of 1.67 (value-weighted) and 3.35 (equal-weighted), with…
The passive management approach offers conservative investors a way to reduce risk concerning the market. This investment strategy aims at replicating a specific index, such as the NASDAQ Composite or the FTSE100 index. The problem is that…
Index tracking, also known as passive investing, has gained significant traction in financial markets due to its cost-effective and efficient approach to replicating the performance of a specific market index. This review paper provides a…
The efficient market hypothesis has been considered one of the most controversial arguments in finance, with the academia divided between who claims the impossibility of beating the market and who believes that it is possible to gain over…
Index funds are substantially preferred by investors nowadays, and market sensitivities are instrumental in managing index funds. An index fund is a mutual fund aiming to track the returns of a predefined market index (e.g., the S&P 500). A…
Portfolio managers are typically constrained by turnover limits, minimum and maximum stock positions, cardinality, a target market capitalization and sometimes the need to hew to a style (such as growth or value). In addition, portfolio…
In the practical business of asset management by investment trusts and the like, the general practice is to manage over the medium to long term owing to the burden of operations and increase in transaction costs with the increase in…
We deal with the optimal execution problem when the broker's goal is to reach a performance barrier avoiding a downside barrier. The performance is provided by the wealth accumulated by trading in the market, the shares detained by the…
In the seminal work [9], several macroscopic market observables have been introduced, in an attempt to find characteristics capturing the diversity of a financial market. Despite the crucial importance of such observables for investment…