If a bond portfolio manager believes I) in market efficiency, he or she is likely to be a passive portfolio manager.
II) that he or she can accurately predict interest-rate changes, he or she is likely to be an active portfolio manager.
III) that he or she can identify bond-market anomalies, he or she is likely to be a passive portfolio manager.

Question

Quizplus · Accepted Answer

Belief in market efficiency typically leads to a passive management approach, as it implies that all available information is already reflected in bond prices, making it difficult to achieve consistent excess returns through active trading. On the other hand, believing in the ability to predict interest rate changes or identify market anomalies suggests confidence in being able to outperform the market, aligning with an active management approach. However, the belief in identifying bond-market anomalies would actually incline a manager towards active, not passive, management, making the correct pairing I and II for a passive and active approach, respectively.

If a Bond Portfolio Manager Believes I) in Market Efficiency