What question did this study set out to answer?

This research aims to analyze how costly information affects mutual fund performance and trading efficiency.

February 1, 1989The Quarterly Journal of Economics652 citations

Efficiency With Costly Information: A Study of Mutual Fund Performance, 1965-1984

Key Points

This research aims to analyze how costly information affects mutual fund performance and trading efficiency.
Evaluated mutual fund performance from 1965 to 1984, focusing on risk-adjusted returns.
Compared investment performance net of fees with index fund returns.
Assessed relationships between portfolio turnover, management fees, and performance.
Risk-adjusted returns in mutual funds are comparable to those of index funds.
Portfolio turnover rates do not correlate with fund performance.
Management fees are unrelated to mutual fund investment outcomes.

Abstract

If information is costly to collect and implement, then it is efficient for trades by informed investors to occur at prices sufficiently different from full-information prices to compensate them for the cost of becoming informed. This notion is tested by evaluating investment performance in the mutual fund industry over a 20-year period. The study finds evidence that is consistent with optimal trading in efficient markets. Risk-adjusted returns in the mutual fund industry, net of fees and expenses, are comparable to returns available in index funds; and portfolio turnover and management fees are unrelated to fund performance.

Ask AI

Helpful

Bookmark

View Full Paper