Journal of Financial and Quantitative Analysis Vol. 45 No. 4 2010
Rational Cross-Sectional Differences in Market Efficiency: Evidence from Mutual Fund Returns
Abstract
Markets should be inefficient enough to allow returns to security analysis to adequately compensate the marginal analyst for his efforts. Cross-sectional differences in the costs of analysis therefore imply cross-sectional differences in market efficiency and in before-cost returns to smart investors. Small growth stocks are difficult to analyze and costly to trade. I find that the abnormal returns of mutual fund investments in small growth stocks from 1980 to 2006 averaged 0.76% per month. Large value stocks are easier to analyze and cheaper to trade. Mutual funds earned average monthly abnormal returns of only 0.05% in large value stocks during the same period.
- DOI
- 10.1017/s0022109010000359
- Volume
- 45
- Issue
- 4
- Pages
- 847-881
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref