How Does Simplified Disclosure Affect Individuals' Mutual Fund Choices?
John L. Beshears
Harvard Business School; National Bureau of Economic Research (NBER)
James J. Choi
Yale School of Management; National Bureau of Economic Research (NBER)
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
Brigitte C. Madrian
Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)
NBER Working Paper No. w14859
We use an experiment to estimate the effect of the SEC's Summary Prospectus, which simplifies mutual fund disclosure. Our subjects chose an equity portfolio and a bond portfolio. Subjects received either statutory prospectuses or Summary Prospectuses. We find no evidence that the Summary Prospectus affects portfolio choices. Our experiment sheds new light on the scope of investor confusion about sales loads. Even with a one-month investment horizon, subjects do not avoid loads. Subjects are either confused about loads, overlook them, or believe their chosen portfolio has an annualized log return that is 24 percentage points higher than the load-minimizing portfolio.
Number of Pages in PDF File: 27
Date posted: April 13, 2009