Does Advertising Moderate Mutual Fund Investor Post-Purchase Decisions?

31 Pages Posted: 2 Mar 2011 Last revised: 7 Mar 2011

See all articles by Chi-Lu (Edward) Peng

Chi-Lu (Edward) Peng

Chung Hua University - Department of Finance; National Sun Yat-sen University

Miao-Ling Chen

National Sun Yat-sen University - Department of Finance

An-Pin Wei

Sun Yat-Sen University (SYSU) - International School of Business and Finance (ISBE)

Date Written: February 28, 2011

Abstract

This paper investigates how advertising influences the patterns of fund investor’s post-purchase behavior as related to fund performance. The evidence shows that fund consumer behavior is influenced by mutual fund advertising in ways similar to goods markets. We find that fund investors are willing to sell winning and are reluctant to sell losing funds. This asymmetric redemption-performance relation is in line with the disposition effect. This study also shows that consumers are less willing to sell winning funds with high fund family advertising than those with low fund family advertising, and are more reluctant to redeem losing mutual funds with high fund family advertising than those with low fund family advertising. A possible explanation for our findings is that advertising may reduce the level of cognitive dissonance, create consumer loyalty, and enhance investors’ risk tolerance, thus giving consumers more incentive to hold both losing and winning funds with high levels of advertising.

Keywords: Advertising, Cumulative Prospect Theory, Disposition Effect, Mutual Fund, Behavioral Finance, Consumer Behavior

JEL Classification: G11, G20, M37

Suggested Citation

Peng, Chi-Lu and Chen, Miao-Ling and Wei, An-Pin, Does Advertising Moderate Mutual Fund Investor Post-Purchase Decisions? (February 28, 2011). Available at SSRN: https://ssrn.com/abstract=1773155 or http://dx.doi.org/10.2139/ssrn.1773155

Chi-Lu Peng (Contact Author)

Chung Hua University - Department of Finance ( email )

No. 707, Sec. 2, WuFu Road
Hsinchu, Taiwan 300
Taiwan

National Sun Yat-sen University ( email )

No.70, Lianhai Rd., Gushan District,
Kaohsiung City
Taiwan

Miao-Ling Chen

National Sun Yat-sen University - Department of Finance ( email )

No.70, Lianhai Rd., Gushan District,
Kaohsiung City
Taiwan

An-Pin Wei

Sun Yat-Sen University (SYSU) - International School of Business and Finance (ISBE) ( email )

China

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