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Truth in Mutual Fund Advertising: Evidence on Future Performance and Fund Flows

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  • Prem C. Jain
  • Joanna Shuang Wu

Abstract

We examine a sample of 294 mutual funds that are advertised in Barron's or Money magazine. The preadvertisement performance of these funds is significantly higher than that of the benchmarks. We test whether the sponsors select funds to signal continued superior performance or they use the past superior performance to attract more money into the funds. Our analysis shows that there is no superior performance in the postadvertisement period. Thus, the results do not support the signaling hypothesis. On the other hand, we find that the advertised funds attract significantly more money in comparison with a group of control funds.

Suggested Citation

  • Prem C. Jain & Joanna Shuang Wu, 2000. "Truth in Mutual Fund Advertising: Evidence on Future Performance and Fund Flows," Journal of Finance, American Finance Association, vol. 55(2), pages 937-958, April.
  • Handle: RePEc:bla:jfinan:v:55:y:2000:i:2:p:937-958
    DOI: 10.1111/0022-1082.00232
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