In a two-part series, Robert A. Jaeger, Ph.D., Senior Market Strategist for BNY Mellon Asset Management, establishes a clear framework for investors seeking to understand the relative strengths of both passive and active management. Proponents of the efficient market hypothesis (EMH) say that in a world where markets are totally efficient, active management is bogus; passive investments are the only rational choice.
Jaeger argues that these conclusions are false and that active managers remain vital to the functioning of modern markets. The EMH starts with a pair of important truths: there are no free lunches, and the investment world is unpredictable. But the EMH fails to note or explain that both efficient and inefficient aspects of the markets are the products of active managers and other investors, who make judgments that are everywhere on the spectrum from rational to irrational. Similarly, EMH offers no help in comprehending the impact of fear, greed, price trends, bubbles and other inconvenient, but persistent, phenomena.
Part I explores how the market’s unpredictability is the foundation for the value added by active management. Part II examines why management skill is elusive, but still worth pursuing.
For more information or a hard copy please contact, please contact David Zigas at BNY Mellon Asset Management at 617 248-6202.
