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Answer: Lower information-seeking costs relative to an active strategy.
In a highly efficient market, a passive investment strategy (e.g., buying and holding a broad market portfolio) is preferred over an active strategy due to lower costs, such as transaction and information-seeking costs. This is because the market's efficiency makes it difficult for active strategies to consistently achieve superior risk-adjusted returns, even before expenses. Passive strategies avoid the higher costs associated with active management, making them more cost-effective in such markets.
Author: LeetQuiz Editorial Team
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In a highly efficient market, a passive investment strategy is most likely characterized by:
A
Higher transaction costs compared to an active strategy.
B
Lower information-seeking costs relative to an active strategy.
C
Superior risk-adjusted returns before expenses compared to an active strategy.
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