Financial Education

The efficient market hypothesis implies that, on average, active managers will not be able to outperform the overall market on a risk-adjusted basis, after fees. The implication of this is that, unless the manager has access to superior research analysts, portfolios should be managed passively. Passive management should result in lower fees for the same average performance.

Index funds are designed to passively mirror the performance of a given index, thus providing passive management.

For more information, see all articles on: Active Management, Investing in Stocks, Investment Returns, Passive Management

See also:

Efficient Market Hypothesis: Weak Form

Efficient Market Hypothesis: Strong Form

Efficient Market Hypothesis: Semi-Strong Form

Credit Rating and the Momentum Anomaly

Are Markets Weak-Form Efficient?