Efficiency with Costly Information: A Reinterpretation of Evidence from Managed Portfolios

TLDR

The study investigates the informational efficiency of mutual fund performance from 1965 to 1984. The authors analyze mutual fund performance data over 1965–84 to evaluate informational efficiency. They find that performance measurement matters, with S&P, non‑S&P, and bond returns significant, and after adjusting for non‑S&P assets, mutual funds fail to earn returns that cover information costs, a pattern consistent with earlier periods.

Abstract

We investigate the informational efficiency of mutual fund performance for the period 1965–84. Results are shown to be sensitive to the measurement of performance chosen. Wefind that returns on S&P stocks, returns on non-S&P stocks, and returns on bonds are significant factors in performance assessment. Once we correct for the impact of non-S&P assets on mutual fund returns, wefind that mutual funds do not earn returns that justify their information acquisition costs. This is consistent with results for prior periods.