There are two different approaches underlying investment management: active and passive investment strategies.
This paper analyzes these two different schools of thought when facing portfolio management and whether either one is superior. It starts with a short insight into the Efficient Market Theory because it the basis of the argumentation between the active versus passive strategies. After understanding the groundwork, the work continues to look deeper into the two different approaches, starting with the active on. In order to be able to compare and evaluate the two approaches, it is necessary to understand, what they consist of and how they work, which strategies each approach uses to accomplish their objectives and what kind of advantages or disadvantages can occur.
Over the past half-decade, capital markets have gained a growing importance for economy and society. More and more business enterprises decide to enter the capital market to finance themselves rather than borrowing money from credit institutions. Simultaneously, more and more investment opportunities for institutions and private persons arise. In general, investments are made to create return in order to increase wealth. Over the past decades, the number of investments has increased sharply, and the trend is still going strong.
This trend causes constantly growing, moving and changing financial markets all over the world. As a result, investors have to overcome many (new) challenges and have to put a lot of factors into consideration in order to be able to make the best investment choices with the brightest promising future.
Inhaltsverzeichnis (Table of Contents)
- 1. INTRODUCTION
- 2. THE EFFICIENT MARKET THEORY
- 3. ACTIVE INVESTMENTS
- 3.1. Definition
- 3.2. Strategies
- 3.2.1. Fundamental Analysis
- 3.2.2. Technical Analysis
- 3.3. Benefits
- 3.4. Limitations
- 4. PASSIVE INVESTMENTS
- 4.1. Definition
- 4.2. Strategies
- 4.2.1. Buy and Hold Strategy
- 4.2.2. Index Funds (Indexing)
- 4.2.3. Exchange Trade Funds (ETFs)
- 4.3. Benefits
- 4.4. Limitations
- 5. CONCLUSION
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper delves into the contrasting approaches of active and passive investment strategies, examining whether one consistently outperforms the other in portfolio management. The central aim is to provide a comprehensive analysis of each strategy, exploring their underpinnings, methodologies, and potential advantages and disadvantages. The paper draws upon the Efficient Market Theory as a foundational concept for understanding the differences between active and passive strategies.
- Efficient Market Theory and its implications for investment strategies
- Active investment management: strategies, benefits, and limitations
- Passive investment management: strategies, benefits, and limitations
- Comparison of active and passive investment strategies in terms of performance and risk
- The role of market efficiency in determining the effectiveness of each strategy
Zusammenfassung der Kapitel (Chapter Summaries)
- Chapter 1: Introduction Introduces the increasing importance of capital markets in the modern economy and the growing opportunities for investment. The paper highlights the need for investors to make informed decisions about investment vehicles, strategies, and risk management. This chapter establishes the context for exploring active and passive investment strategies.
- Chapter 2: The Efficient Market Theory Examines the Efficient Market Hypothesis and its implications for investment strategies. The chapter explains the core principles of market efficiency, including the concepts of full information reflection in security prices and random price movements. It explores the debate surrounding the empirical evidence for the Efficient Market Hypothesis.
- Chapter 3: Active Investments Provides a detailed analysis of active investment strategies. This chapter defines active management, outlines common strategies such as fundamental and technical analysis, and discusses the potential benefits and limitations of this approach.
- Chapter 4: Passive Investments Presents a comprehensive overview of passive investment strategies. The chapter defines passive management, examines various strategies including buy-and-hold, index funds, and exchange-traded funds (ETFs), and explores the benefits and limitations associated with this approach.
Schlüsselwörter (Keywords)
The key terms and concepts explored in this paper include active investment strategies, passive investment strategies, efficient market theory, market efficiency, fundamental analysis, technical analysis, buy-and-hold strategy, index funds, exchange-traded funds (ETFs), portfolio management, investment management, return maximization, risk minimization, market anomalies, market trends, and benchmark performance.
- Quote paper
- Stina Seidler (Author), 2020, Active vs. Passive Investment Strategies. Is either one superior?, Munich, GRIN Verlag, https://www.grin.com/document/950629
