Advertising and Portfolio Choice

47 Pages Posted: 3 Aug 2006

See all articles by Henrik Cronqvist

Henrik Cronqvist

Chapman University - The George L. Argyros School of Business & Economics

Date Written: July 26, 2006


This paper examines the role that advertising plays in the mutual fund industry and whether advertising affects investors' fund and portfolio choices. Content analysis shows that only a small fraction of fund advertising is directly informative about characteristics relevant for rational investors, such as fund fees. Higher quantities of advertising do not signal ex ante higher unobservable fund manager ability, because funds that advertise more are not associated with higher post-advertising excess returns. Fund advertising is shown to affect investors' choices, although it provides little information. These results do not seem to be driven by the endogeneity of advertising, and are robust to a series of robustness checks. Finally, advertising is found to steer people towards portfolios with higher fees and more risk, through higher exposure to equities, more active management, more "hot" sectors, and more home bias. This evidence has implications for welfare analysis, asset pricing and public policy, and may serve as a starting point for broader analysis of marketing and persuasion efforts in financial markets.

Keywords: Portfolio choice, Individual investor behavior, Mutual funds, Advertising, Marketing

JEL Classification: G11, G18, G23, M31, M37

Suggested Citation

Cronqvist, Henrik, Advertising and Portfolio Choice (July 26, 2006). Available at SSRN: or

Henrik Cronqvist (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States

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