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Han,2021 describe active investing puzzle as:

Notably, individual investors trade actively and have invested in active investment funds for decades, and they thereby have on average underperformed net of costs relative to a passive strategy such as holding a market index, the active investing puzzle

It is clear that active trading underperforms passive trading due to the trading costs, so we know the reason why active trading underperform passive trading, so why it is a puzzle?

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    $\begingroup$ The puzzle is why people continue to actively trade when an index fund would perform better $\endgroup$
    – dm63
    Nov 2, 2021 at 6:44
  • $\begingroup$ @dm63, I agree, but in the same paper, Han,2021 also says that "In recent years, there has also been a shift from active mutual funds toward both indexing and also to hedge funds", in this case, it seems that the puzzle is no longer hold?. I mean, if the active trading increase, we can say it is a puzzle, but if it decrease, why we still call it a puzzle? $\endgroup$
    – Phil Nguyen
    Nov 2, 2021 at 6:46
  • $\begingroup$ Different risk profiles? I don't know about you, but looking at the graph of the NASDAQ makes me pretty nervous. I absolutely wouldn't dump all my money into a NASDAQ index fund. $\endgroup$
    – user253751
    Nov 2, 2021 at 10:15
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    $\begingroup$ The puzzle continues so long as people continue to underperform relative to the market. Even if more people are using indexing, there's still a ton of day traders losing money on a regular basis. $\endgroup$
    – RegressForward
    Nov 2, 2021 at 19:29
  • $\begingroup$ Thanks @RegressForward, I got it $\endgroup$
    – Phil Nguyen
    Nov 2, 2021 at 20:31

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The puzzle always was why people invest in active funds not why active funds under-perform. As long as there are people choosing active funds the puzzle remains.

Even if masses would switch from active to passive funds, it would be still puzzling why it took them decades to do so. We know that active funds under-perform for decades now.

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