Chapter | Explorations in the Economics of Aging | 2011

How Does Simplified Disclosure Affect Individuals' Mutual Fund Choices?

by John Beshears, James J. Choi, David Laibson and 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 loadminimizing portfolio.

Keywords: Information; Corporate Disclosure; Decision Choices and Conditions; Consumer Behavior; Retirement; Personal Finance; Investment Funds; Microeconomics;

Citation:

Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. "How Does Simplified Disclosure Affect Individuals' Mutual Fund Choices?" In Explorations in the Economics of Aging, edited by David A. Wise, 75–96. Chicago: University of Chicago Press, 2011.