Transcending the Active/Passive Debate

Abstract

The author reexamines a recent study on active versus passive management. Exposure of some common logical and mathematical errors makes a conclusion in the whole active/passive debate too close to call. Newer frontiers offer the promise of greater risk-adjusted performance than either active or passive management could ever offer on its own. Ironically, investors most likely to beat their index have perhaps the greatest need of all for passive management—albeit with a twist.