Final answer:
An investor who favors market timing and doubts the Rational Expectations Theory may consider an actively managed mutual fund but should be cautious of the risks and historical performance data showing many such funds underperforming the market.
Step-by-step explanation:
An investor who prefers market timing strategies and does not subscribe to the Rational Expectations Theory may find an actively managed mutual fund more suitable compared to an index fund. Active funds are managed by financial professionals who attempt to outperform market averages by selecting securities they believe will exceed market returns. However, it is important to note that a significant proportion of active funds historically fail to outperform index funds consistently, which inherently follow the market's performance.
For an investor skeptical about the predictable nature of the stock market and who seeks to employ market timing, an active mutual fund might offer the tailored strategies they believe are necessary. Nonetheless, this approach entails higher risk and often higher fees, with many such funds failing to achieve above-market returns over time. Therefore, even for an investor with preferences for timing the market, one should carefully weigh the odds of success against the risks and costs involved.