Working Paper: CEPR ID: DP10923
Authors: Ron Kaniel; Robert Parham
Abstract: We exploit a novel natural experiment to establish a clear causal relation between media attention and consumer investment behavior. Our findings indicate a 31 percent local average increase in quarterly capital flows into mutual funds mentioned in a prominent Wall Street Journal "Category Kings" ranking list, compared to those funds which just missed making the list. This flow increase is about 7 times larger than extra flows due to the well documented performance-flow relation. Other funds in the same complex receive substantial extra flows as well, especially in smaller complexes. There is no increase in flows when similar information is conveyed absent the prominence of the Category Kings lists. We show mutual fund managers react to the incentive created by the media effect in a strategic way predicted by theory, and present evidence for the existence of propagation mechanisms including increased fund complex advertising subsequent to having a Category King and increased efficacy of subsequent fund media mentions.
Keywords: Attention; Flows; Media; Mutual Fund Ranking; Risk Shifting; Visibility
JEL Codes: D14; D83; G14; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Capital flows into mutual funds (F21) | Risk-shifting behaviors of fund managers (G41) |
| Capital flows into mutual funds (F21) | Increased advertising activities (M37) |
| Prominence of publication (Y90) | Capital flows into mutual funds (F21) |
| Media attention (L82) | Capital flows into mutual funds (F21) |
| WSJ's category kings lists (Y90) | Capital flows into mutual funds (F21) |
| Media attention (L82) | Capital flows to other funds in the same complex (F21) |