Which of the following are correct arguments supporting passive investment strategies?
I.Active trading strategies may not guarantee higher returns but guarantee higher costs
II.Passive investors can free ride on the activity of knowledge investors whose trades force prices to reflect currently available information
III.Passive investors are guaranteed to earn higher rates of return than active investors over sufficiently long time horizons
A) I only
B) I and II only
C) II and III only
D) I, II and III

Question

Quizplus · Accepted Answer

Option I is correct because active trading strategies often incur higher costs due to frequent buying and selling of securities. Option II is also correct as passive investors can benefit from the knowledge and insights of active investors who drive prices to reflect currently available information. However, option III is incorrect as there is no guarantee that passive investors will earn higher returns than active investors over long time horizons. It depends on the specific investment strategy and market conditions.

Which of the Following Are Correct Arguments Supporting Passive Investment