Mutual Funds and Qualitative Disclosure

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

Krakow, Nils Jonathan and Schäfer, Timo, Mutual Funds and Qualitative Disclosure (June 10, 2020). Swiss Finance Institute Research Paper No. 20-54, Winner of the Swiss Finance Institute Best Paper Doctoral Award 2020, Available at SSRN: https://ssrn.com/abstract=3648089 or http://dx.doi.org/10.2139/ssrn.3648089