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Chapter 2: Question 8-7CP (page 261)

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.

Short Answer

Expert verified

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.

Step by step solution

01

Definition

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

02

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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