Bill Sharpe proves that the average alpha from active management is zero (and after transaction costs the average active manager returns less than passive funds). One active manager's gain is offset by equal losses among some other active managers.
So I stumbled across this paper "Does Active Management Pay? New International Evidence" by Alexander Dyck, Karl Lins and Lukasz Pomorski. They find that on average, net annual returns for active equity strategies exceed those of passive equity strategies by about 1.1% in markets outside the U.S.
Does this empirical finding contradict Sharpe's equilibrium argument that average active management returns are zero?
Update: As soon as I finished preparing the question, I realized how the two arguments can both be true without contradiction. Still this makes for an fun riddle. I'll post my answer in 24 hours or award it to whomever gets it first.