Active fund managers and the rise of Passive investing: epistemic opportunism in financial markets

Crawford Spence, Yuval Millo, James Valentine

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Financial markets have witnessed a dramatic shift in financial flows in recent years from Active fund management where professional investors attempt to beat the market (generate ‘alpha’) to Passive investment where portfolios are assembled that follow existing market indicators (track ‘beta’). This transition has important implications for both corporate governance and wider society, with potentially significant distributive effects. Passive investing is predicated upon different bodies of knowledge and is suggestive of an epistemic shift of sorts in financial markets. In such circumstances, field theory suggests that incumbent groups like Active players will try to adapt to the new rules of the investment game. However, drawing from an empirical study which explores the views of the Active investment community in both the UK and the US, we document significant defensiveness vis-à-vis the rise of Passive investing. As such, we conclude that financial markets should be understood as characterised by slowly evolving communities of practice whose habits, routines and ways of knowing can be difficult to shift, even when faced with overwhelming evidence that what they are doing doesn’t work most of the time. Whereas behavioural approaches might explain this defensiveness in terms of irrationality, the conceptual approach advanced here emphasises the epistemic opportunism (convoluted and self-serving attempts to demonstrate superior knowledge) that communities engage in to justify their position.
Original languageEnglish
Number of pages33
JournalEconomy & Society
Publication statusAccepted/In press - 6 Jan 2023


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