Portfolios - EDHEC-Risk

Inefficient i Portfolios in Efficient i Markets
• For more than 50 years, the asset management industry has
mainly focused on a single source of added-value:
outperforming commercial indices through security selection.
• This approach is based on two implicit assumptions:
– Equity markets are inefficient markets;
– Equity indices are efficient benchmarks.
• Academic research has questioned these two assumptions:
– Weak evidence of persistence in (positive) abnormal performance
(alpha) by active managers => emergence of index funds;
– Strong evidence of inefficiency of cap-weighted indices =>
emergence of alternative benchmarks.
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