Tag: passive investing

Grossman-Stiglitz paradox: Arbitrageurs outperform an efficient market

Consider a securities market where price-sensitive information is available only to participants who pay a fixed cost in money or effort. So only paid-up agents know the fair prices of securities. However, not all agents would be willing to pay for information. Some would argue that because there are enough informed market participants, ensuring that securities are correctly priced, why then incur the “unnecessary” cost of gathering information?

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Savers have to be active investors

I (Phi) am an active investor. Phi’s definition of a passive investor is someone who would invest his savings in proportion to the market capitalisation of the total investable universe. However, all savers, individuals or institutions, are forced to be active investors whether they like it or not.

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