In what extent active management brings more value to its investors than passive management?

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Duvallet, Sebastien
Issue Date
MBA in Finance
Dublin Business School
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The main purpose of this study is to understand in what extent active management brings more value to investors than passive management. This study attempts to answer the theories stating that passive management performs better on the long term than active management. Since a few years, financial markets are marked by speculation and mainly the rise of algorithmic trading, also called high-frequency trading. Sources used in this dissertation come from secondary and primary data. The former were collected in books, journals, academic articles, newspapers, and Internet to constitute the literature review. The primary data were gathered by realising semi-structured interviews of fund managers, using active management methods. In the first part of this dissertation, the literature review is a critical analysis of the subjects surrounding the study. The author defines and identifies the factors impacting fund managers’ portfolios. The managers’ psychology is seen as one of those factors and is developed with the help of Behavioural Finance. The second part of the study implement the primary data gathered from the interviews. The information is presented, analysed, and used to answer the research questions, as stated in the introduction. This qualitative dissertation describes and analyses the factors impacting fund managers and their portfolios. It has for objective to understand why active management is known to not perform better than passive management, and what value could it bring to investors. This research contributes in helping fund managers to use the right investment strategies and philosophies to earn higher returns, and investors to recognise the interest active management can have by giving them the tools necessary for their choices. As it is a qualitative study, mathematics and algorithms do not enter the scope of this study. Author keywords: Asset management, behaviour, psychology, finance, market, returns, value investing, indexing