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Truth in Mutual Fund Advertising: Evidence on Future Performance and Fund Flows
Author(s) -
Jain Prem C.,
Wu Joanna Shuang
Publication year - 2000
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00232
Subject(s) - open end fund , closed end fund , fund of funds , business , mutual fund , commodity pool , sample (material) , control (management) , finance , monetary economics , accounting , economics , institutional investor , management , corporate governance , market liquidity , chemistry , chromatography
We examine a sample of 294 mutual funds that are advertised in Barron's or Money 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.