Definition of cost matters hypothesis CMH

The cost matters hypothesis (CMH) is a term coined by Jack Bogle, the founder of low-cost passive investment specialist Vanguard. In a 2003 issue of CFA Magazine, Mr Bogle wrote that whether markets are more efficient or less efficient, the costs of investing will still matter. He suggests that just as the efficient markets hypothesis has gained wide acceptance, so will his observation that the mathematical expectation of the long-term investor is a shortfall to the stock market's return – a shortfall that is equal to the costs of our system of financial intermediation. In other words, advisory fees, brokerage commissions, transactions costs, custody and legal fees and securities processing expenses all add up to take away from the investor. Mr Bogle estimated that intermediation costs accounted for 3% of the value of the US equity market.


cost matters hypothesis in the news

In March 2010, an FT columnist observed that although no one much believes in the efficient market hypothesis anymore, its lesser known cousin, the CMH appears to go from strength to strength.

FT Articles & Analysis

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