Mutual Funds and Qualitative Disclosure

Swiss Finance Institute Research Paper No. 20-54

Winner of the Swiss Finance Institute Best Paper Doctoral Award 2020

59 Pages Posted: 10 Jul 2020 Last revised: 9 Apr 2021

See all articles by Nils Jonathan Krakow

Nils Jonathan Krakow

University of Zurich - Department of Banking and Finance

Timo Schäfer

Goethe University Frankfurt - Faculty of Economics and Business Administration

Date Written: June 10, 2020

Abstract

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

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

Nils Jonathan Krakow (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

Timo Schäfer

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

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