Active vs . Passive Investing and the Efficiency of Individual Stock Prices

@inproceedings{Wermers2010ActiveV,
  title={Active vs . Passive Investing and the Efficiency of Individual Stock Prices},
  author={R. Wermers and Tong Yao},
  year={2010}
}
In equilibrium, active investing must be compensated with returns from gathering costly information about stock values (e.g., Grossman and Stiglitz, 1980). In return, active investors serve to promote price discovery in stocks. However, substantial trading is required by active, informed investors, who may prefer to trade in the same stocks as passive, uninformed investors to hide their intentions and better profit from their private information (e.g., Admati and Pfleiderer, 1988). Thus, both… Expand
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