An article in the Wall Street Journal notes this about Burton Malkiel: “Even before index funds existed, the now-retired Princeton University professor argued that they could outperform actively managed funds.”
a. What is the difference between an index fund and an actively managed fund?
b. Why might we expect investors to receive a higher return in the long run from buying index funds than from buying actively managed funds?
c. Does that fact that index funds provide higher returns in the long run than actively managed funds indicate that the people who run index funds know more about the stock market than do the people who run actively managed funds? Briefly explain.