WSJ Category Kings - The Impact of Media Attention on Consumer and Mutual Fund Investment Decisions
57 Pages Posted: 30 Jan 2015 Last revised: 2 Oct 2018
Date Written: November 18, 2015
We exploit a novel natural experiment to establish a clear causal relation between media attention and consumer investment behavior. Our ﬁndings indicate a 31 percent local average increase in quarterly capital ﬂows into mutual funds mentioned in a prominent Wall Street Journal “Category Kings” ranking list, compared to those funds which just missed making the list. This ﬂow increase is about 7 times larger than extra ﬂows due to the well documented performance-ﬂow relation. Other funds in the same complex receive substantial extra ﬂows as well, especially in smaller complexes. There is no increase in ﬂows when similar information is conveyed absent the prominence of the Category Kings lists. We show mutual fund managers react to the incentive created by the media effect in a strategic way predicted by theory, and present evidence for the existence of propagation mechanisms including increased fund complex advertising subsequent to having a Category King and increased efficacy of subsequent fund media mentions.
Keywords: mutual funds, media, visibility, flows, tracking error
JEL Classification: D12, D83, G02, G11, G14, G23
Suggested Citation: Suggested Citation