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Advertising and Portfolio Choice


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  • Henrik Cronqvist

    (The Ohio State University, Fisher College of Business, Department of Finance)

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    Using a unique large-scale event, the year 2000 launch of a privatized social security system involving individual savings accounts in Sweden, I report empirical evidence on the link between fund advertising and people’s fund and portfolio choices. First, content analysis reveals that a very small portion of ads can be construed as directly informative about characteristics relevant for rational mutual fund investors, such as funds’ expense ratios. Second, higher levels of advertising expenditures do not appear to signal ex ante higher unobservable fund manager quality or talent. Third, fund advertising affects people’s portfolio choices, even when advertising does not appear to contain any information. Finally, fund advertising steers people to portfolios with lower returns and higher risk. My results have important implications for a welfare analysis of fund advertising and portfolio choices, asset pricing models, and mutual fund industry policy making, and may serve as a starting point for wider and more formal analysis of the effects of advertising, marketing, and persuasion in financial markets.

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    Bibliographic Info

    Paper provided by Center for Research on Pensions and Welfare Policies, Turin (Italy) in its series CeRP Working Papers with number 44.

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    Length: 60 pages
    Date of creation: Nov 2005
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    Handle: RePEc:crp:wpaper:44

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    Related research

    Keywords: Portfolio choice; Individual investor behavior; Mutual funds; Advertising;

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    Cited by:
    1. Sendhil Mullainathan & Joshua Schwartzstein & Andrei Shleifer, 2008. "Coarse Thinking and Persuasion," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(2), pages 577-619, 05.
    2. Sendhil Mullainathan & Andrei Shleifer, 2005. "Persuasion in Finance," NBER Working Papers 11838, National Bureau of Economic Research, Inc.


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