The impact of international financial reporting standards on fund performance

The purpose of this paper is to examine the effect of international financial reporting standards (IFRS) on the performance of UK investment closed-end trust funds with domestic equity focus using Carhart’s Four-Factor model.

The paper is based on the Efficient Market Hypothesis, which argues that all available information is already included in the price of assets, and therefore, investors cannot beat the market or generate abnormal returns.

The results show that on average, UK investment trusts neither do generate abnormal returns, nor is their performance persistent. This paper provides empirical evidence to support the efficient market hypotheses and provides proof that the adoption of IFRS has, on average, a decreasing impact on the excess returns generated by UK investment trusts.

The findings of this paper have business policy implications for investment trust in the UK.