A. There are two sharply different answer to this question. Today we will introduce the famous article by Nobel Laureate William Sharpe's view.
William Sharpe's famous article titled “The Arithmetic of Active Management”, it states that “before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar,” such that after costs are considered in the aggregate, active management always and must be a losing value proposition (even if there are certain groups of active managers that systematically outperform, as they would only do so by systematically beating other “bad” active managers who underperform by an equivalent amount).
Feel free to read this article (not long) by yourself at CFApubs.org.
In our next blogpost we will present the opposite view.