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Question 8-7CP

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Essentials Of Investments
Found in: Page 261
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

Some scholars contend that professional managers are incapable of outperforming the market. Others come to an opposite conclusion. Compare and contrast the assumptions about the stock market that support ( a ) passive portfolio management and ( b ) active portfolio management.

The assumptions such as informational efficiency and primacy of diversification motives side with passive management while assumptions in support of active management is that there exists pockets of market inefficiency.

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Step by Step Solution

Definition

Usually tracking the performance of portfolio by an investor is known as active management.

Explanation

Assumptions supporting passive management are:

a. informational efficiency

b. primacy of diversification motives

Assumptions supporting active management are:

a. existing pockets of market inefficiency

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