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, Revised in December 2011
NBER Program(s):The Program on Aging, The Asset Pricing Program, The Public Economics Program

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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Document Object Identifier (DOI): 10.3386/w14859

Published:

• Chapter How Does Simplified Disclosure Affect Individuals' Mutual Fund Choices? Edited by John Beshears, James J. Choi, David Laibson and Brigitte C. Madrian in Explorations in the Economics of Aging Published by University of Chicago Press Published in print May 2011 | ISBN: 9780226903378 Published online February 2013 | e-ISBN: 9780226903385 | DOI: http://dx.doi.org/10.7208/chicago/9780226903385.003.0003
• How Does Simplified Disclosure Affect Individuals' Mutual Fund Choices?, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian. in Explorations in the Economics of Aging, Wise. 2011

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