How Does Simplified Disclosure Affect Individuals' Mutual Fund Choices?

John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

NBER Working Paper No. 14859
Issued in April 2009
NBER Program(s):   AG   AP   PE

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.

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This paper was revised on December 5, 2011

Acknowledgments

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