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How Does Simplified Disclosure Affect Individuals' Mutual Fund Choices?

Author

Listed:
  • Beshears, John

    (Harvard University)

  • Choi, James

    (Yale University)

  • Laibson, David

    (Harvard University)

  • Madrian, Brigitte C.

    (Harvard University)

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.

Suggested Citation

  • Beshears, John & Choi, James & Laibson, David & Madrian, Brigitte C., 2009. "How Does Simplified Disclosure Affect Individuals' Mutual Fund Choices?," Working Paper Series rwp09-016, Harvard University, John F. Kennedy School of Government.
    • Handle: RePEc:ecl:harjfk:rwp09-016
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    File URL: https://research.hks.harvard.edu/publications/workingpapers/citation.aspx?PubId=6693&type=WPN
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    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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