Efficiency with Costly Information: A Study of Mutual Fund Performance, 1965–1984

Richard A. Ippolito

The Quarterly Journal of Economics, 1989, vol. 104, issue 1, 1-23

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.

Date: 1989
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