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Faculty Research Working Paper Series
Brigitte Madrian
Professor of Public Policy and Corporate Management in the Aetna Chair
phone: (617)495-8917
fax: (617)496-1722
How Does Simplified Disclosure Affect Individuals’ Mutual Fund Choices?
Beshears, John, James Choi, David Laibson, and Brigitte Madrian. "How Does Simplified Disclosure Affect Individuals’ Mutual Fund Choices?" HKS Faculty Research Working Paper Series RWP09-016, March 2009.
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 loadminimizing portfolio.
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