A comparison of active and passive investment strategies in portfolio management: The case of Borsa Istanbul

In capital markets, the raise in type and number of investable assets and the change in investers' expectatitons made investors search for new investment strategies that offer more than market average return. By time, many active strategies offering returns higher than market averages were developed as alternatives to passive strategies, and have commonly been used together with passive strategies. As much as the raise in the level of financial literacy and the change in investors' expectations, the inclusion of quantitive methods to the investment process has caused the switch from passive to active strategies. In this study, the comparison of active and passive investment strategies in the framework of traditional and behavioral finance theories—which are the theoretical bases of these strageties—is examined first in accordance with the arguments occuring between market professionals over the past few years. Next, the tools and methods of technical analysis commonly used in active investment strategies are explained. Lastly, the efficiency of momentum investment strategy—an active investment strategy—is tested on stocks listed in the BIST100 index. The findings confirm that with a momentum strategy, a strategy whose observation and holding periods are determined by considering the market to which they will be applied, it's possible to earn returns higher than the market average. Keywords: Portfolio Management, Momentum Investing, Behavioral Finance, Technical Analysis, Sharpe Ratio