Informativeness of Mutual Fund Advertisements: Does Advertising Communicate Fund Quality to Investors?

Obaid, Khaled; Pukthuanthong, Kuntara

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Informativeness of Mutual Fund Advertisements: Does Advertising Communicate Fund Quality to Investors?

Forthcoming, Financial Management, 2020

57 Pages Posted: 29 May 2020 Last revised: 1 Jun 2020

See all articles by Khaled Obaid

Kuntara Pukthuanthong

University of Missouri at Columbia - Department of Finance

Date Written: May 1, 2020

Abstract

We uncover a positive relation between advertising expenditures and skill in the mutual fund industry. Motivated by economic signaling models, we find that funds advertising in magazines outperform their peers by 83 basis points in the subsequent year. We determine that the performance differential between advertising and non-advertising funds is largest when investment opportunities are high and persists for 36 months. Generally, the positive relation between advertising expenditures and future fund flows is not sensitive to the content of the advertisements and is strongest when investor attention is high.

Keywords: Portfolio choice; Individual investor behavior; Mutual funds; Advertising; Signal; Signaling theory; Performance

JEL Classification: G11; G18; G23; M31; M3

Suggested Citation: Suggested Citation

Obaid, Khaled and Pukthuanthong, Kuntara, Informativeness of Mutual Fund Advertisements: Does Advertising Communicate Fund Quality to Investors? (May 1, 2020). Forthcoming, Financial Management, 2020, Available at SSRN: https://ssrn.com/abstract=3590724