The Exclamation Mark of Cain: Risk Salience and Mutual Fund Flows

Abstract

We study a regulation that increased mutual funds' risk salience through name change. Using daily fund flow data and several identification strategies, we find that requiring certain fixed income mutual funds to affix an exclamation mark ("!") to their names caused a statistically and economically significant decline in their net flows, with a larger effect on fund inflows than outflows. The exclamation mark’s impact stems from retail investors, both those that seek financial advice and those that invest independently. Mutual funds “defamed” by the exclamation mark designation actually increased their exposure to the particular risk highlighted by the regulator.

Keywords: Mutual Funds, Regulation, Investor Attention, Investor Protection

JEL Classification: G18, G28, G23, G41