Abstract
To evaluate the success or failure of active funds, we need to select benchmarks. Susan Belden of Skidmore College and M. Barton Waring of BGI hold a debate in writing over whether a benchmark should be based on a broadly accepted market benchmark, such as the S&P 500, or a narrowly defined benchmark, based on the investing style of the fund. He finds that the analyst is able to explain over 90% of price movements not traceable to publicly available information, which is consistent with a high degree of market knowledge. A significant proportion of these price changes are attributable to factors unrelated to information per se, providing support for the hypothesis that a significant proportion of company price changes are triggered by events relating to fads, fashion, or sentiment.
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