Working Paper: NBER ID: w14859
Authors: John Beshears; James J. Choi; David Laibson; Brigitte C. Madrian
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.
Keywords: mutual funds; summary prospectus; investor behavior; disclosure; financial literacy
JEL Codes: C93; D14; D18; G11; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| summary prospectus (G24) | investment choices (G11) |
| summary prospectus (G24) | dollar-weighted average fees (G19) |
| summary prospectus (G24) | past returns (G17) |
| summary prospectus (G24) | time spent on investment decisions (G11) |
| time spent on investment decisions (G11) | portfolio choices (G11) |
| sales loads (G24) | investment decisions (G11) |
| redemption fees (G12) | investment decisions (G11) |
| expected return (G17) | load-minimizing portfolio (G11) |