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Advertising and Portfolio Choice

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Author Info
Henrik Cronqvist () (The Ohio State University, Fisher College of Business, Department of Finance)
Abstract

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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Publisher 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
Date of revision:
Handle: RePEc:crp:wpaper:44

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

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions
M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising

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Cited by:
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  1. Sendhil Mullainathan & Andrei Shleifer, 2005. "Persuasion in Finance," NBER Working Papers 11838, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Sendhil Mullainathan & Joshua Schwartzstein & Andrei Shleifer, 2006. "Coarse Thinking and Persuasion," NBER Working Papers 12720, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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