Mutual Funds and Investor Choice: Paths to the 'Wizards of Advertising and Overconfidence'
21 Pages Posted: 9 Jun 2010 Last revised: 14 Oct 2012
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Mutual Funds and Investor Choice: Paths to the 'Wizards of Advertising and Overconfidence'
Date Written: October 4, 2010
Abstract
This article explores the relationships of mutual fund advertising and investor skill in making fund choices. Fund advertising dominates the choices of unsophisticated investors. Advertising appeals to investor emotions by resonating with current beliefs, not by providing information that enables more informed fund choices. Choices of unsophisticated investors are dominated by fund advertising - The Wizards of Advertising.”
Sophisticated investors with self-assessed above average investment skills believe they make superior choices of actively managed mutual funds that will outperform index funds. However, sophisticated investors are not superior investors but overconfident investors - The Wizards of Overconfidence.”
There are four paths to the truth about mutual fund advertising and investor investment skills. These paths are investor financial literacy, investor revealed preferences, advertising and investor choice, and advertising as persuasion. Each path is reviewed and its individual findings provided.
Keywords: Mutual Funds, Advertising, Investment Skill, Sophisticated Investors, Unsophisticated Investors
JEL Classification: G2, G23, G28
Suggested Citation: Suggested Citation