An Empirical Examination of Index Efficiency: Implications for Index Funds

Abstract

Indexes are frequently used for a basis of comparison of the performance of different types of assets, such as mutual funds and common stocks. Sharpe [6] studied the performance of mutual funds over the period 1944 to 1963 and compared their performance to the Dow-Jones Industrial Average (DJIA) using the capital-asset pricing model. For this period he concluded that mutual funds were relatively inferior investments. Joy and Porter [2], using the stochastic dominance approach, reached conclusions similar to those of Sharpe for the 1954–1963 period.