TY - JOUR T1 - Do Passive or Active Investors Make Better Asset Allocation Decisions? JF - The Journal of Index Investing SP - 74 LP - 80 DO - 10.3905/jii.2010.1.2.074 VL - 1 IS - 2 AU - David M. Blanchett Y1 - 2010/08/31 UR - https://pm-research.com/content/1/2/74.abstract N2 - Mutual fund investors demonstrate their asset allocation preferences through their investment dollars, or net fund flows. Gruber [1996] and Zheng [1999] noted that mutual fund investors appear to be “smart” because the short-term performance of funds that experience inflows is significantly better than the short-term performance of those that experience outflows. However, Frazzini and Lamont [2008] countered those findings and noted that mutual fund investors appear to be “dumb,” because retail investors reduce their wealth in the long run by reallocating across different mutual funds. What is not clear from these findings is the difference in the “intelligence” of active and passive investors. The results of the analysis conducted for this article suggest that when net flows are ranked and sorted for all active and passive mutual funds across the nine domestic equity styles, both types of investors are “smart” over the short term, which is consistent with past research. Active investors are “dumb” in the long term,however,while passive investors remain “smart” in the long term (i.e., they make wise long-term asset allocation investing decisions).TOPICS: Style investing, portfolio theory, mutual fund performance ER -