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How Does Simplified Disclosure Affect Individuals’ Mutual Fund Choices?

In: Explorations in the Economics of Aging

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Author Info

  • John Beshears
  • James J. Choi
  • David Laibson
  • Brigitte C. Madrian

Abstract

We use an experiment to estimate the effect of the SEC’s Summary Prospectus, which simplifies mutual fund disclosure. Our subjects chose an equity portfolio and a bond portfolio. Subjects received either statutory prospectuses or Summary Prospectuses. We find no evidence that the Summary Prospectus affects portfolio choices. Our experiment sheds new light on the scope of investor confusion about sales loads. Even with a one-month investment horizon, subjects do not avoid loads. Subjects are either confused about loads, overlook them, or believe their chosen portfolio has an annualized log return that is 24 percentage points higher than the load-minimizing portfolio.

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This chapter was published in:

  • David A. Wise, 2011. "Explorations in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise09-2, July.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11933.

    Handle: RePEc:nbr:nberch:11933

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. James J Choi & David Laibson & Brigitte C Madrian, 2008. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," Levine's Working Paper Archive 122247000000002014, David K. Levine.
    2. Richard H. Thaler & Shlomo Benartzi, 2001. "Naive Diversification Strategies in Defined Contribution Saving Plans," American Economic Review, American Economic Association, American Economic Association, vol. 91(1), pages 79-98, March.
    3. Cronqvist, Henrik, 2006. "Advertising and Portfolio Choice," Working Paper Series, Ohio State University, Charles A. Dice Center for Research in Financial Economics 2006-16, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    4. Shlomo Benartzi & Richard H. Thaler, 1999. "Risk Aversion or Myopia? Choices in Repeated Gambles and Retirement Investments," Management Science, INFORMS, INFORMS, vol. 45(3), pages 364-381, March.
    5. Edwin J. Elton & Martin J. Gruber & Jeffrey A. Busse, 2004. "Are Investors Rational? Choices among Index Funds," Journal of Finance, American Finance Association, American Finance Association, vol. 59(1), pages 261-288, 02.
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    Cited by:
    1. James J Choi & David Laibson & Brigitte C Madrian, 2008. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," Levine's Working Paper Archive 122247000000002014, David K. Levine.
    2. Eduardo Fajnzylber & Gonzalo Reyes, 2011. "Knowledge, Information and retirement saving decisions: Evidence from a large scale intervention in Chile," Working Papers, Adolfo Ibáñez University, School of Government wp_011, Adolfo Ibáñez University, School of Government.

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