(05 NOVEMBER 2017)Thought of the week:Active vs. passive: Are economists interested?

In 2007 around 25 percent of US equity funds were passively managed. Today that number is around 50 percent. Do economists care about the active versus passive debate?

The instinctive answer is “no”. However, the rise of passive investing since 2007 has been accompanied by other changes. Until 2007 global investment in foreign bonds and equites was worth between 6 and 8 percent of the world economy. Since 2010 that number has averaged 2.7 percent.

No economist would dare to suggest that correlation means causation. However, a passive portfolio suggests fewer trades. That will include fewer foreign trades. Passive investment might also increase home country bias, depending on the index followed.

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