WHY THE EFFICIENT MARKET OFFERS HOPE TO ACTIVE MANAGEMENT*

This article provides an interesting resolution of the paradox at the heart of efficient markets theory: namely, in financial markets that appear to be becoming ever more efficient, with fewer and fewer fund managers able to beat the S&P 500, why do investors engage in active trading? Why not index? The key to the author's defense of active management lies in its critique of economists' concept of “equilibrium prices.”