Challenging the Zero-Sum Game Assumption
The idea that equity markets are a 'zero-sum game', where active managers cannot outperform passive strategies, has been disputed.
The most popular argument used against active management, the so-called zero-sum game argument, is also the most abused, misused, and misunderstood.
Research suggests that changes in the structure and participants of stock markets may create more opportunities for active managers to outperform, even in challenging markets like the US.
There are two types of investors: active and passive. Passive investors earn the market return, and active investors, in aggregate, must also earn the market return.
Author's Summary
Active managers can outperform in US large-cap markets.
- Equity markets are not a zero-sum game.
- Changes in market structure and participants create opportunities for active managers.
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