Abstract
Motivated by the deteriorating standalone performance of popular active stock selection strategies, we investigate how they behave in a portfolio context. We show that investors holding portfolios diversified within and across asset classes via passive investment products cannot benefit from the addition of active products based on, for example, value, profitability and momentum effects. More specifically, the latter do not significantly improve out-of-sample Sharpe ratios. This result holds for both optimized portfolio weighting schemes (recently tilted towards bond markets) and heuristic fixed-weight approaches (with pronounced equity focus). It is also robust to a variety of modifications in our general research setup.
Published Version
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