Title: Mutual fund trust: Evidence from qualitative disclosure
Authors: Liying Wang - City, University of London (United Kingdom) [presenting]
Abstract: The level of complexity that mutual funds adopt in their communications to existing and potential investors is studied. We find that low-quality funds manipulate their prospectuses, making them more complex, possibly targeting less sophisticated investors. These investors, in turn, use a less sophisticated asset pricing model to evaluate fund performance, react more aggressively to past winners, and are less sensitive to fund fees. We also find that funds with a relatively low-complexity prospectus are likely to outperform other funds, and their fees are more in line with their managerial skills. The results suggest that funds with low-complexity prospectuses are more trustworthy, and that funds with high-complexity prospectuses are subject to more severe agency issues.