high returns is called a “return-chasing behavior.” Equity mutual fund flows have a positive correlation with past performance, with a return-flow correlation coefficient of 0.49. Stock market returns are almost unpredictable in the short term. Stock market returns tend to go back to the long-term average. The tendency to buy MUTUAL FUNDS with high returns and sell those with low returns can reduce profit. Unsophisticated short-term investors sell passive ETFs during extreme market times. Passive funds affect the price of stocks. Rationale for passive investing The concept of passive management is counterintuitive to many investors. The rationale behind indexing stems from the following concepts of financial economics: In the long term, the average investor will have an average before-costs performance equal to the market average. Therefore, the average investor will benefit more from reducing investment costs than from trying to beat the average, and passive investments generally charge lower fees that actively-managed investments. This argument is commonly known as William Sharpe's zero-sum game theory. The efficient-market hypothesis postulates that equilibrium market prices fully reflect all available information, or to the extent there is some information not reflected, there is nothing that can be done to exploit that fact. It is widely interpreted as suggesting that it is impossible to systematically "beat the market" through active management, although this is not a correct interpretation of the hypothesis in its weak form. Stronger forms of the hypothesis are controversial, and there is some debatable evidence against it in its weak form too. For further information see behavioural finance. The principal–agent problem: an investor (the principal) who allocates money to a portfolio manager (the agent) must properly give incentives to the manager to run the portfolio in accordance with the investor's risk/return appetite, and must monitor the manager's performance. Advocates for passive management argue that performance results provide support for Sharpe's zero-sum game theory. There are two prominent reports that compare the performance of index funds with the performance of actively-managed funds, the SPIVA (S&P Indexes Versus Active Funds) report and the Morningstar Active-Passive Barometer. However, analysis of the methodology of these reports suggests that they are overly negative in assessing the skill of active managers. Concerns about passive investing Criticism has been leveled at passive investment by investors like Howard Marks Carl Icahn, Michael Burry and Jeffrey Gundlach who argue that asset bubbles can be considered a byproduct of the increasing popularity