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yes, if you have a million money managers, 50K of them will beat the market, at a 5% confidence interval another problem is, what is the proper benchmark? say
by vasilipupkin 12y ago
yes, if you have a million money managers, 50K of them will beat the market, at a 5% confidence interval
another problem is, what is the proper benchmark? say he beat S&P 500. Ok, but we know that small stocks or value stocks outperform S&P 500. Did he beat a small stocks index? My guess is once you construct a proper benchmark, it becomes even less likely that he really did beat it.
- mizzao 12y agoAnother way to look at what you're saying is to ask whether a small cap index beat the S&P 500 over the last 40 years. Of course it did (see the following link for the last 10 years, as Google doesn't have earlier data; https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1427071690248&chddm=1064088&chls=IntervalBasedLine&cmpto=INDEXSP:SP600&cmptdms=0&q=INDEXSP:.INX&ntsp=0&ei=IGIPVYHoB4O38QafpIDABA https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&... ); as higher (diversified) risk begets higher return, but the returns were also far more volatile. So if he still achieved the return of a small cap index without as much volatility, that would have accomplished something.