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Informativeness of mutual fund advertisements: Does advertising communicate fund quality to investors?

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  • Khaled Obaid
  • Kuntara Pukthuanthong

Abstract

We uncover a positive relation between advertising expenditures and skill in the mutual fund industry. Motivated by economic signaling models, we find that funds advertising in magazines outperform their peers by 83 basis points in the subsequent year. We determine that the performance differential between advertising and nonadvertising funds is largest when investment opportunities are high and persists for 36 months. Generally, the positive relation between advertising expenditures and future fund flows is not sensitive to the content of the advertisements and is strongest when investor attention is high.

Suggested Citation

  • Khaled Obaid & Kuntara Pukthuanthong, 2021. "Informativeness of mutual fund advertisements: Does advertising communicate fund quality to investors?," Financial Management, Financial Management Association International, vol. 50(1), pages 203-236, March.
    • Handle: RePEc:bla:finmgt:v:50:y:2021:i:1:p:203-236
    DOI: 10.1111/fima.12323
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