Mutual fund selection for realistically short samples

Selection Neglect in Mutual Fund Advertisements

M utual fund companies selectively advertise their better-performing funds. However, investors respond to advertised performance data as if those data were unselected (i.e., representative of the population). We identify the failure to discount selected or potentially selected data as selection neglect. We examine these phenomena in an archival study (Study 1) and two controlled experiments (St...

The MUTUAL FUND INDUSTRY

Mutual Fund Objective Misclassification∗

Mutual funds are usually classified based on their stated objectives. If the stated objectives are not the actual objectives the funds pursue, conclusions drawn by investors and researchers based on the stated objectives will be misleading. This study classifies funds based on their attributes (characteristics, investment style, and risk/return measures). We find that the stated objectives of m...

Evaluating Mutual Fund Performance

We study standard mutual fund performance measures, using simulated funds whose characteristics mimic actual funds. We find that performance measures used in previous mutual fund research have little ability to detect economically large magnitudes ~e.g., three percent per year! of abnormal fund performance, particularly if a fund’s style characteristics differ from those of the value-weighted m...

Mutual Fund Tax Clienteles

Mutual funds are held by investors in taxable and tax-qualified retirement accounts. We investigate whether the characteristics, investment strategies, and performance of mutual funds held by these diverse tax clienteles differ. Examining both mutual fund distributions and mutual fund holdings, we find that funds held primarily by taxable investors choose investment strategies that result in lo...