Index portfolio and welfare analysis under heterogeneous beliefs

He, XZ; Shi, L

Index portfolio and welfare analysis under heterogeneous beliefs

He, XZ

Shi, L

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Publication Type:: Journal Article
Citation:: Journal of Banking and Finance, 2017, 75 pp. 64 - 79
Issue Date:: 2017-02-01

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Field	Value	Language
dc.contributor.author	He, XZ https://orcid.org/0000-0003-1446-9996	en_US
dc.contributor.author	Shi, L https://orcid.org/0000-0002-6226-1762	en_US
dc.date.available	2020-05-25T19:17:17Z
dc.date.issued	2017-02-01	en_US
dc.identifier.citation	Journal of Banking and Finance, 2017, 75 pp. 64 - 79	en_US
dc.identifier.issn	0378-4266	en_US
dc.identifier.uri	http://hdl.handle.net/10453/111738
dc.description.abstract	© 2016 Elsevier B.V. With a growing popularity of index funds, we adopt a differences-in-opinion, general equilibrium framework to examine theoretically whether investors are better off with an index portfolio than active investing. In contrary to the conventional view, we find that, even for an active investor with the most accurate belief, switching to an index portfolio can significantly improve his expected ex-post welfare when the active investors have incorrect beliefs or face incomplete information. Moreover, the welfare improvement becomes more substantial when the active investors are more risk averse.	en_US
dc.relation	http://purl.org/au-research/grants/arc/DP130103210
dc.relation.ispartof	Journal of Banking and Finance	en_US
dc.relation.isbasedon	10.1016/j.jbankfin.2016.11.001	en_US
dc.subject.classification	Finance	en_US
dc.title	Index portfolio and welfare analysis under heterogeneous beliefs	en_US
dc.type	Journal Article
utslib.citation.volume	75	en_US
utslib.for	0102 Applied Mathematics	en_US
utslib.for	1401 Economic Theory	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	open_access
pubs.publication-status	Published	en_US
pubs.volume	75	en_US

Abstract:

© 2016 Elsevier B.V. With a growing popularity of index funds, we adopt a differences-in-opinion, general equilibrium framework to examine theoretically whether investors are better off with an index portfolio than active investing. In contrary to the conventional view, we find that, even for an active investor with the most accurate belief, switching to an index portfolio can significantly improve his expected ex-post welfare when the active investors have incorrect beliefs or face incomplete information. Moreover, the welfare improvement becomes more substantial when the active investors are more risk averse.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/111738