  We use the Grossman \& Stiglitz (1980) framework to build a reference
portfolio for uninformed investors and employ this portfolio to assess the
performance of actively managed equity mutual funds. We propose an empirical
methodology to construct this reference portfolio using the information on
prices and supply. We show that mutual funds provide, on average, an
insignificant alpha of 23 basis points per year when considering this portfolio
as a reference. With the stock market index as a proxy for the market
portfolio, the average fund alpha is negative and highly significant, --128
basis points per year. The results are robust when considering various subsets
of funds based on their characteristics and their degree of selectivity. In
line with rational expectations equilibrium models considering asymmetrically
informed investors and partially revealing equilibrium prices, our study
supports that active management adds value for uniformed investors.
