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Academic Paper Makes the Case for Active Management

In a recent paper, Professor Russ Wermers of the University of Maryland’s Robert H. Smith School of Business focuses on the activities of active investment managers and concludes that active management adds value for all investors and contributes to the efficiency of the public security markets. The work on the paper was supported by the Investment Adviser Association’s Active Managers Council, which was formed to support education and research on the value of active management for investors and the capital markets and to engage on relevant public policy issues. Wermers’ paper surveys previous academic literature on the relationship between active investment management and the efficiency of public security markets in the United States and arrives at several important findings, including active managers’ ability to exploit and correct market mispricings and their role in providing intraday liquidity to other traders, given their ability to make discretionary trades. Wermers asserts that the benefits of active management are amplified in small- and mid-cap U.S. stocks, relative to large-cap stocks and that “the improved market efficiency afforded by active management especially enhances the ability of small- and mid-sized companies to raise capital for investments in the real economy.”  Wermers also discusses current trends and the future of active management.

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