Truth in Mutual Fund Advertising: Evidence on Future Performance and Fund Flows

Truth in Mutual Fund Advertising: Evidence on Future Performance and Fund Flows

  • Prem C. Jain
  • Joanna Shuang Wu

Article first published online: 17th December 2002 DOI: 10.1111/0022-1082.00232

Abstract


We examine a sample of 294 mutual funds that are advertised in or magazine. The preadvertisement performance of these funds is significantly higher than that of the benchmarks. We test whether the sponsors select funds to signal continued superior performance or they use the past superior performance to attract more money into the funds. Our analysis shows that there is no superior performance in the postadvertisement period. Thus, the results do not support the signaling hypothesis. On the other hand, we find that the advertised funds attract significantly more money in comparison with a group of control funds.

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