An Analysis of the Efficient Market Theory: Active Versus Passive Investment Management in Educational Institution Endowment Funds

In the seven year period, 2002-2008, a majority of university endowment funds studied outperformed a calculated passive return with their active strategies. This return was calculated using a weighted average of appropriate indices based on predefined asset classes used by the educational institutions in this study. However, these results may have been affected by the larger endowments in the study. Endowments over $100 million in size outperformed passive returns on average while smaller endowments did not. Many studies have supported the efficient market theory, indicating it is difficult for active strategies to outperform passive strategies. However, the university endowment funds examined in this study appear to have outperformed the broader market indices using their individual active strategies.