WSJ Category Kings - the impact of media attention on consumer and mutual fund investment decisions

We exploit a novel natural experiment to establish a causal relation between media attention and consumer investment behavior, independent of the conveyed information. Our findings indicate a 31 percent local average increase in quarterly capital flows into mutual funds mentioned in a prominent Wall Street Journal “Category Kings” ranking list, compared to those funds which just missed making the list. This flow increase is about 7 times larger than extra flows due to the well-documented performance-flow relation. Other funds in the same fund complex receive substantial extra flows as well, especially in smaller complexes. There is no increase in flows when the Wall Street Journal publishes similar lists absent the prominence of the Category Kings labeling. We show mutual fund managers react to the incentive created by the media effect in a strategic way predicted by theory, and present evidence for the existence of propagation mechanisms including increased fund complex advertising subsequent to having a Category King and increased efficacy of subsequent fund media mentions. JEL classification: D14, D83, G11, G14, G23. The research leading to these results has received funding from the European Research Council under the European Union’s Seventh Framework Programme (FP7/2007-2013) / ERC Grant Agreement no. [312842]. We appreciate the comments of Jonathan Reuter and seminar participants at the University of Rochester and University of Connecticut. Robert (Jay) Kahn, Shelly Massachi, Arash Amoozegar, Yihua Nie and Diego Leal Gonzalez provided valuable research assistance. All errors are our own. ∗University of Rochester, IDC and CEPR ([email protected]) †University of Rochester ([email protected])