Editing Passive management (section)

==  Investment in passive strategies  ==

Research conducted by the [[World Pensions & Investments Forum|World Pensions Council (WPC)]] suggests that 15% to 20% of overall assets held by large [[pension fund]]s and national [[social security]] funds are invested in various forms of passive funds- as opposed to the more traditional actively managed mandates which still constitute the largest share of institutional investments.<ref name="Rachael Revesz">{{Cite news|author=Rachael Revesz|date=November 27, 2013|title=Why Pension Funds Won't Allocate 90 Percent To Passives|work=Journal of Indexes - ETF.com|url=http://europe.etf.com/blog/9450-why-pension-funds-wont-allocate-90-percent-to-passives.html|access-date=June 7, 2014}}</ref> The proportion invested in passive funds varies widely across jurisdictions and fund type.<ref name="Rachael Revesz" /><ref name="Chris Flood">{{Cite news|author=Chris Flood|date=May 11, 2014|title=Alarm Bells Ring for Active Fund Managers|work=FT fm|url=http://www.ft.com/cms/s/0/22b03864-d535-11e3-9bca-00144feabdc0.html#axzz33xgBDzEz |archive-url=https://ghostarchive.org/archive/BfaJA |archive-date=December 10, 2022 |url-access=subscription |url-status=live|access-date=June 7, 2014}}</ref>

The relative appeal of passive funds such as [[Exchange-traded fund|ETFs]] and other index-replicating investment vehicles has grown rapidly <ref>{{Cite news|author=Mike Foster|date=June 6, 2014|title=Institutional Investors Look to ETFs|work=Financial News|url=http://media.efinancialnews.com/story/2014-06-06/institutional-investors-look-to-etfs?ea9c8a2de0ee111045601ab04d673622|url-status=dead|access-date=June 7, 2014|archive-url=https://web.archive.org/web/20140715001220/http://media.efinancialnews.com/story/2014-06-06/institutional-investors-look-to-etfs?ea9c8a2de0ee111045601ab04d673622|archive-date=July 15, 2014|df=mdy-all}}</ref>  for various reasons ranging from disappointment with underperforming actively managed mandates <ref name="Rachael Revesz" /> to the broader tendency towards [[cost reduction]] across public services and social benefits that followed the 2008-2012 [[Great Recession]].<ref name="europe.etf.com">{{Cite news|author=Rachael Revesz|date=May 7, 2014|title=UK Govt. Leading Way For Pensions Using Passives|work=Journal of Indexes - ETF.com|url=http://europe.etf.com/europe/features-a-news/9778-uk-govt-leading-way-for-pensions-using-passives.html?start=1&Itemid=129|access-date=June 7, 2014}}</ref>  Public-sector pensions and national [[reserve (accounting)|reserve]] funds have been among the early adopters of passive management strategies.<ref name="Chris Flood" /><ref name="europe.etf.com" />

At the [[Federal Reserve Bank of St. Louis]], YiLi Chien, Senior Economist wrote about return-chasing behavior. The average equity mutual fund investor tends to buy MUTUAL FUNDS with high past returns and sell otherwise. Buying MUTUAL FUNDS with high returns is called a "return-chasing behavior." Equity mutual fund flows have a positive correlation with past performance, with a return-flow correlation coefficient of 0.49.  Stock market returns are almost unpredictable in the short term.  Stock market returns tend to go back to the long-term average. The tendency to buy MUTUAL FUNDS with high returns and sell those with low returns can reduce profit.<ref>copied from the wikipedia article [[Market timing]] {{cite web |title=Chasing Returns Has a High Cost for Investors &#124; St. Louis Fed On the Economy |url=http://www.stlouisfed.org/on-the-economy/chasing-returns-has-a-high-cost-for-investors/}} copied from wikipedia article [[Buy & Hold]]</ref>

Unsophisticated short-term investors sell passive ETFs during extreme market times. Passive funds affect the price of stocks.<ref>[https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3504016&download=yes] Todorov, Karamfil, Passive Funds Actively Affect Prices: Evidence from the Largest ETF Markets (November 14, 2019). Available at SSRN: https://ssrn.com/abstract=3504016 or http://dx.doi.org/10.2139/ssrn.3504016</ref>