Abstract/Details

Passive versus active management of mutual funds: Evidence from the 1995–2008 period


2010 2010

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Abstract (summary)

Modern portfolio theory commenced the ensuing debate regarding the benefits of active versus passive management in regards to mutual funds. The two opposing mutual fund management styles claim that they produce superior risk-adjusted performance. The dissertation explores the research question: During the full 1995 to 2008 market cycle, which investment management style, active or passive, produced the better risk-adjusted performance?

The significance of this historic stock market period relates to the fact it contains the two greatest bull markets (1995-1999 & 2003-2007) followed by subsequent bear markets (2000-2002 & 2008). The study tested nine hypotheses, derived from the above research question, for the 5 different time periods (1995-1999, 2000-2002, 2003-2007, 2008, and 1995-2008).

Based on previous research, one would expect the passive management styles to out-perform the active styles during expansion whereas the performance would reverse during market contraction. The Sharpe composite portfolio performance measure, that combines risk and return into a single value, was used to measure, analyze, and rank risk-adjusted performance.

The study, comprised of 45 statistical tests, found that on a risk-adjusted basis that the active indices (proxies for active management) Sharpe ratios were significantly greater than those of the passive indices (proxies for passive management) Sharpe ratios for; (1) the midcap blend category for the periods 1995 to 2008 and 1995 to 1999; (2) the small blend category for the periods 1995 to 2008 and 1995 to 1999, and (3) the small value category for the periods 1995 to 2008, 1995 to 1999, and 2000 to 2002. Therefore, the active indices Sharpe ratio significantly exceeded the passive indices Sharpe ratio for 16% of the statistical tests conducted while the active indices Sharpe ratio did not significantly exceed the passive indices Sharpe ratio for 84% of the statistical tests conducted. The findings suggested that in the long run passive management produced better performance results than active management.

Indexing (details)


Subject
Management;
Finance;
Studies;
Mutual funds
Classification
0454: Management
0508: Finance
Identifier / keyword
Social sciences; Active management; Mutual fund; Passive management; Portfolio theory
Title
Passive versus active management of mutual funds: Evidence from the 1995–2008 period
Author
Prondzinski, Dale A.
Number of pages
213
Publication year
2010
Degree date
2010
School code
1191
Source
DAI-A 71/06, Dissertation Abstracts International
Place of publication
Ann Arbor
Country of publication
United States
ISBN
9781124015477
Advisor
Williams, Albert
Committee member
Barnes, Barry; Sherbo, Andrew
University/institution
Nova Southeastern University
Department
Business Administration (DBA)
University location
United States -- Florida
Degree
D.B.A.
Source type
Dissertations & Theses
Language
English
Document type
Dissertation/Thesis
Dissertation/thesis number
3404491
ProQuest document ID
516280447
Copyright
Database copyright ProQuest LLC; ProQuest does not claim copyright in the individual underlying works.
Document URL
http://search.proquest.com/docview/516280447
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