Learning from Prospectuses

54 Pages Posted: 15 Jun 2021 Last revised: 24 Oct 2022

See all articles by Simona Abis

Simona Abis

Columbia University - Columbia Business School, Finance

Andrea M Buffa

University of Colorado at Boulder - Leeds School of Business

Apoorva Javadekar

Indian School of Business

Anton Lines

Columbia Business School

Date Written: October 24, 2022

Abstract

We analyze fund managers' incentives to disclose qualitative information about their strategies, and investors’ ability to learn from these disclosures. We propose a mechanism whereby investors make fewer errors in distinguishing active returns from passive factor exposures when they have access to more detailed strategy descriptions. In a formal model, we show that investor attribution errors are, on balance, more costly for managers with more specialized strategies, leading them to write more detailed descriptions. In the data, we find evidence for this prediction and support for the model’s core learning mechanism, as well as new insights into the flow-performance relationship.

Keywords: mutual funds, fund prospectus, information disclosure, fund benchmarks, machine learning

JEL Classification: G23, G11, D83

Suggested Citation

Abis, Simona and Buffa, Andrea M and Javadekar, Apoorva and Lines, Anton, Learning from Prospectuses (October 24, 2022). Available at SSRN: https://ssrn.com/abstract=3865753 or http://dx.doi.org/10.2139/ssrn.3865753

Simona Abis

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://https://www8.gsb.columbia.edu/cbs-directory/detail/sa3518

Andrea M Buffa (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Apoorva Javadekar

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

Anton Lines

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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