Mutual Funds and Qualitative Disclosure
Winner of the Swiss Finance Institute Best Paper Doctoral Award 2020
59 Pages Posted: 10 Jul 2020 Last revised: 9 Apr 2021
Date Written: June 10, 2020
In this paper, we use the content of U.S. mutual funds' prospectuses to examine the informational value of funds' qualitative disclosures. We document significant heterogeneity in the cross-section of funds' qualitative disclosures, primarily attributed to characteristics at the investment company level. Using textual analysis, we decompose funds' qualitative disclosures into informative and standard content. Our results show that funds' risk-taking behavior and risk-adjusted-performance increase with the informativeness of their disclosures. Content-based updates of disclosures are informative about funds' future risk-taking and their future performance. Finally, we document evidence that investors react to some extent to the informativeness of fund disclosures.
Keywords: Mutual funds; qualitative disclosure; fund prospectuses; textual analysis; fund performance
JEL Classification: D8, G14, G23, G38
Suggested Citation: Suggested Citation