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Question
What was William Sharpe's core argument in his 1991 paper "The Arithmetic of Active Management"?
1
Active managers are systematically irrational and should be replaced by algorithms
2
Active managers outperform in bull markets but underperform in bear markets on average
3
The aggregate of active investors constitutes the market, so before costs they cannot outperform it — and after costs they must collectively underperform
4
Index funds are superior only in large-cap equities; active management adds value in small-cap markets
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