Winners in the Spotlight: Media Coverage of Fund Holdings as a Driver of Flows

Abstract:     
We show that media coverage of mutual fund holdings affects how investors allocate money across funds. Fund holdings with high past returns attract extra flows only if these stocks were recently featured in the media. In contrast, holdings that were not covered in major newspapers do not affect flows. We present evidence that media coverage tends to contribute to investors’ chasing of past returns rather than facilitate the processing of useful information in fund portfolios. Fund managers exploit this behavior by purchasing media-covered past winners at reporting dates, a strategy most prevalent among poorly performing funds. Our evidence suggests that media coverage can exacerbate investor biases and that it is the primary mechanism that makes window dressing effective.

Number of Pages in PDF File: 56

Keywords: media, attention, mutual funds, window-dressing

JEL Classification: G11, G14

working papers series