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Information Pricing: The Evidence from Equity Mutual Funds

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  • Ciccotello, Conrad S
  • Grant, C Terry

Abstract

The theory of information pricing implies that the benefits from obtaining costly information should be offset by the costs. In the case of mutual funds, this theory suggests that trades by fund managers should take place at prices that compensate their clients for the managers' costs of becoming informed. This paper controls for risk fund size, and age, to assess the relationship of a fund's information costs to its performance. The findings show that stock funds charging the highest expenses generally earn returns insignificantly different from funds charging the lowest expenses. This lends support to the theory of information pricing. The findings are also indicative of an efficient market, given that information is costly. Copyright 1996 by MIT Press.

Suggested Citation

  • Ciccotello, Conrad S & Grant, C Terry, 1996. "Information Pricing: The Evidence from Equity Mutual Funds," The Financial Review, Eastern Finance Association, vol. 31(2), pages 365-380, May.
    • Handle: RePEc:bla:finrev:v:31:y:1996:i:2:p:365-80
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    Cited by:

    1. Muhammad Asad & Danish Ahmed Siddiqui, 2019. "Determinants of Mutual Funds Performance in Pakistan," International Journal of Social and Administrative Sciences, Asian Economic and Social Society, vol. 4(2), pages 85-107, June.
    2. Ciccotello, Conrad S. & Grant, C. Terry, 1996. "Equity fund size and growth: Implications for performance and selection," Financial Services Review, Elsevier, vol. 5(1), pages 1-12.

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