again. The study concluded, â€œIn light of such large transaction costs and positive opportunity costs, our results suggest that the termination and selection of investment managers is an exercise that is costly to plan beneficiaries.â€? Using data from the same study by Goyal and Wahal, Figure 5-6 conveys the tendency for investment committees or plan sponsors to hire investment managers with a history of abovebenchmark returns and fire managers with lower performance. The chart shows that after managers were hired, their posthiring excess returns were indistinguishable from zero, and the managers that were fired performed better than the hired managers. The plan sponsors should have just bought index funds and forgotten about manager picking in the first place.
Published on Jun 1, 2015
This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...