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1 – 10 of over 5000Taejun (David) Lee, TaiWoong Yun and Eric Haley
This research aims to examine the effects of financial services advertising disclosures by pairing a content analysis documenting how mandatory financial disclosures are presented…
Abstract
Purpose
This research aims to examine the effects of financial services advertising disclosures by pairing a content analysis documenting how mandatory financial disclosures are presented in mutual fund advertisements with a between-subjects experiment assessing whether inclusion of the disclosures influences consumer responses to advertisement, brand and company evaluations.
Design/methodology/approach
This research examines the effects of financial services advertising disclosures by pairing a content analysis documenting how mandatory financial disclosures are presented in mutual fund advertisements with a between-subjects experiment assessing whether the inclusion of the disclosures influences consumer responses to the ad, brand and company.
Findings
The findings show more positive consumer responses for perceived advertising responsibility, recall, and cognitive response as well as higher risk perception when consumers are exposed to the financial disclosures in mutual fund advertisements. Also, the results indicate a mediating role of positive cognitive responses on attitude toward the mutual fund company only when consumers are exposed to advertising disclosures.
Originality/value
The paper extends knowledge of whether and how required information disclosures pertaining to mutual funds influence investors ' psychological responses in mutual fund advertising contexts. From a managerial perspective, it has implications for financial services advertising and other social marketing campaigns by uncovering the effects of advertising-as-information in financial decision-making. From a public policy standpoint, the paper is among the first to make explicit claims regarding the role of advertising disclosure in retail investment circumstances.
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The purpose of this paper is to provide a comprehensive background on the recent legislative, regulatory, and prosecutorial scrutiny of mutual funds and underlying issues such as…
Abstract
Purpose
The purpose of this paper is to provide a comprehensive background on the recent legislative, regulatory, and prosecutorial scrutiny of mutual funds and underlying issues such as the level and transparency of fees and costs, distribution and sales practices, and fund governance.
Design/methodology/approach
Provides a detailed chronology of events since January 2003 concerning mutual fund scandals such as trading abuses and questionable sales practices and related issues such as revenue sharing, directed brokerage, soft dollars, market timing, late trading, and selective disclosure. The chronology in this issue of JOIC will be followed an article in the next issue that describes reform initiatives that have taken place in response to the scandals.
Findings
Despite criticism and scrutiny of equity mutual funds following poor performance in 2001 and 2002, meaningful efforts to achieve reform began to lose momentum in mid‐2003. Then concern with mutual fund abuses was reignited in September 2003 when New York Attorney General Eliot Spitzer announced a settlement with Canary Capital that involved market timing, late trading, and selective disclosure. Since then there have been numerous disclosures of fund trading abuses and questionable trading practices, and the resulting uproar has triggered significant efforts to reform the manner in which funds and their service providers conduct business.
Originality/value
This comprehensive chronology provides an essential reference by bringing together all the events and underlying issues related to mutual fund scandals, abuses, regulation, compliance, and reform efforts since January 1, 2003.
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Matti Turtiainen, Jani Saastamoinen, Niko Suhonen and Tuomo Kainulainen
In the European Union, the Undertakings for Collective Investment in Transferable Securities Directive (UCITS IV) requires fund management companies to provide a Key Investor…
Abstract
Purpose
In the European Union, the Undertakings for Collective Investment in Transferable Securities Directive (UCITS IV) requires fund management companies to provide a Key Investor Information Document (UCITS KIID) for investors. This papers uses archival data from the Finnish mutual fund market to test how the regulation's information disclosure requirements concerning past performance, risk and fund fees are associated with mutual fund flows.
Design/methodology/approach
The study uses archival data on the mutual funds market in Finland to test how the regulation relating to retail investors' information requirements is associated with mutual fund flows.
Findings
Our findings suggest that the UCITS KIID predicts retail investors' fund flows. While past performance is associated with fund flows throughout the observation period, retail investors appear to have become more sensitive to fund fees and invest in less risky funds following the adoption of the UCITS IV period.
Practical implications
Information relating to fund fees and risk appears to be relevant to retail investors, which should be acknowledged in future iterations of short-form disclosure and in mutual fund marketing.
Originality/value
This paper is the first to assess the significance of KIID in actual market environment.
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During 2003, compensation practices for the retail sale of mutual funds came under fire. Recent revelations about failures in the processing of mutual fund breakpoints had…
Abstract
During 2003, compensation practices for the retail sale of mutual funds came under fire. Recent revelations about failures in the processing of mutual fund breakpoints had triggered a more in‐depth investigation into mutual fund marketing and compensation practice by securities regulators, Congress, and the states. This article focuses on the regulation of sales compensation practices primarily as it affects a broker‐dealer selling mutual funds in the retail market. It addresses the regulatory framework for three key compensation practices: (1) the use of non‐cash compensation in connection with mutual fund sales; (2) marketing and compensation arrangements providing enhanced compensation to a selling firm as well as to its sales representatives for the promotion of certain fund securities over others, such as proprietary funds over non‐proprietary funds, preferred funds over non‐preferred funds, and Class B shares over Class A shares; and (3) the use of commissions for mutual fund portfolio trades as an additional source of selling compensation for selling firms, a practice sometimes referred to as ”directed brokerage.“
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Seung Hee Choi and Maneesh Chhabria
Congress and the Securities and Exchange Commission (SEC) have mandated mutual fund disclosure regimes to help investors make better investment decisions to strike an optimal…
Abstract
Purpose
Congress and the Securities and Exchange Commission (SEC) have mandated mutual fund disclosure regimes to help investors make better investment decisions to strike an optimal balance between the investors' interest in more timely and accurate portfolio holdings disclosure and the cost associated with making and disclosing the holdings information available to investors. Many academics and practitioners point out that, despite all the regulations on portfolio disclosure, fund managers can still engage in practices that go against the spirit of the rules without violating the letter of the law. The purpose of this paper is to address the empirical question of whether the practice exists, using holdings data for more than 3,000 equity mutual funds during the time period from 1995 to 2004.
Design/methodology/approach
In this paper, the authors examine window dressing by mutual fund portfolio managers, using holdings data covering more than 3,000 equity mutual funds from 1995 to 2004. The authors first investigate whether the fund holdings are materially different from universe holdings across performance quintiles based on holdings in the month of disclosure and in the following month. The second part of the analysis examines funds' patterns of buying and selling. Finally, the measure of “Buying Intensity” and “Selling Intensity” is examined, with a specific focus on the holdings data for the fourth quarter.
Findings
An examination of fund holdings finds no statistically significant evidence of systematic window dressing, either at the aggregate level or within subsamples of funds based on size or past performance. Rather, it was found that fund managers tend to chase momentum. A combination of investor sophistication and market oversight may serve to be effective in dissuading fund managers from engaging in the practice.
Originality/value
The authors' data are at the individual fund level, based on equity mutual funds holdings data provided to Morningstar on a quarterly or monthly basis (according to Elton et al., the Morningstar database provides timely and accurate mutual fund holdings information). These data allow us to infer better the investment manager intent vis‐à‐vis using 13F data, which is aggregate data across various fund families and separate accounts, or aggregate pension fund equity holdings data that includes aggregate holdings of multiple portfolio managers. In addition, the authors comment on the significance of the regulatory checks and balances that are designed to restrict fund managers' ability to window‐dress their portfolios. In summary, the combination of quantitative evidence from empirical tests and an examination of the legal framework under which mutual fund portfolio managers operate, lead to the conclusion that window dressing is not prevalent in the industry.
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The purpose of this paper is to investigate the impact of competition in financial markets on the frequency of portfolio disclosures by mutual funds and its implications for…
Abstract
Purpose
The purpose of this paper is to investigate the impact of competition in financial markets on the frequency of portfolio disclosures by mutual funds and its implications for consumer search costs.
Design/methodology/approach
The empirical analysis merges the Center for Research in Security Prices (CRSP) survivorship bias-free mutual fund database, the Thompson Financial CDA/ Spectrum holdings database and the CRSP stock price data. The sample covers the time period between 1993 and 2010 and OLS and logistic regressions are used to investigate the impact of competition on fund disclosures.
Findings
This paper finds that mutual fund disclosures decrease with market competition and this effect is amplified for funds holding illiquid assets. These results provide empirical support for the findings of Carlin et al. (2102). Mutual funds use portfolio disclosures as a marketing tool to attract investments in a tournament-like market, where superior relative performance and greater visibility are rewarded with convex payoffs. With competition, the likelihood of receiving new investments decreases for each fund and funds respond by reducing costly voluntary disclosures. The disclosure costs are higher for funds holding illiquid assets, and hence, the effect is stronger for them.
Originality/value
This paper has important policy implications for disclosures in a market where relative performance matters. The traditional view is that competition induces voluntary disclosure because entities would like to differentiate themselves from competitors, and hence, competition should increase market transparency. However, this paper sheds light on the negative consequence of competition in a tournament-like mutual fund market.
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Raquel Meyer Alexander, LeAnn Luna and Steven L. Gill
Section 529 college savings plans are tax-favored investment vehicles, which saw tremendous growth after the Economic Growth and Tax Relief Reconciliation Act of 2001 expanded 529…
Abstract
Section 529 college savings plans are tax-favored investment vehicles, which saw tremendous growth after the Economic Growth and Tax Relief Reconciliation Act of 2001 expanded 529 plan benefits to include tax-free distributions for qualified higher education expenses. However, regulators, the press, and fund advisors criticized the Section 529 college savings plan industry for inadequate and nonuniform disclosures of investor information, such as historical returns, fees, taxes, and underlying investments. We investigate consumers’ investment choices after a disclosure regime change in 2003 and find that after enhanced disclosures became widely available, investors selected fewer plans offered exclusively through brokers, increasingly chose portfolios based on past investment performance, but remained unresponsive to state tax benefit disclosures. We also analyze the plans’ performance and find evidence that 529 investors are constrained to invest in portfolios with high, return-eroding fees. Nearly 20 percent of the portfolios have a statistically significant negative alpha, the measure of risk-adjusted excess return, while less than 1 percent have a statistically significant positive alpha.
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Seung Hee Choi and Maneesh Chhabria
The timeliness of portfolio holdings information disclosure has been of interest among regulators, academics and practitioners since the Investment Company Act of 1940. The…
Abstract
Purpose
The timeliness of portfolio holdings information disclosure has been of interest among regulators, academics and practitioners since the Investment Company Act of 1940. The Securities Exchange Commission has been trying to strike a balance between investors' interest in timely disclosure and the potential costs associated with revealing the strategies of investment managers. The purpose of this paper is to investigate whether current rules regarding the delay in disclosure adequately protect investors, and prevent the formation of copycat portfolios that can profit from the research of the original portfolio manager.
Design/methodology/approach
The paper examine the effectiveness of different delays (30, 60 or 90 days) in disclosure of holdings for a sample of large‐cap, actively‐managed mutual funds. Copycat portfolios are constructed based on the holdings of the original portfolios, and their returns compared against the returns (net of expenses) of the original portfolios over the corresponding time frames.
Findings
The results indicate that the current delay of 60 days is sufficient to prevent such free‐riding; however, shortening the delay to 30 days would adversely affect mutual fund investors.
Originality/value
The paper aims to provide an answer to those debates on the effective delays in portfolio disclosure among academics and practitioners based on quantitative evidence. It also contributes to leave a guideline for regulators since the patterns of over‐ or under‐performance of the original portfolio returns vis‐à‐vis the copycat portfolio returns over varying delays provide important insights about possible effects of changes in disclosure regulations.
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The purpose of this paper is to discuss the SEC's Proposed Release 33‐8861 of November 21, 2007, “Enhanced disclosure and new prospectus delivery option for registered open‐end…
Abstract
Purpose
The purpose of this paper is to discuss the SEC's Proposed Release 33‐8861 of November 21, 2007, “Enhanced disclosure and new prospectus delivery option for registered open‐end management investment companies.”
Design/methodology/approach
The paper provides an overview of the proposed rule. It then discusses its impact on the industry, investors, and the environment; and how the summary prospectus could impact retirement plans. The paper answers some frequently asked questions; and provides an implementation timeline.
Findings
The paper finds that the SEC has proposed a rule for a shorter, simpler, standardized prospectus that would tell investors what they need to know within three to four pages and provide web access to more detailed information if desired. The stated goal is provide the average investor with clear, succinct information and also to standardize information to facilitate fund‐to‐fund comparisons. The summary prospectus also offers a significant opportunity to reduce publishing and mailing costs and may provide the mutual fund industry with the impetus to migrate from paper‐based to electronic disclosure.
Originality/value
The paper provides insight from a financial disclosure systems provider.
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Niket Thakker, Hitesh Kalro, Mayank Joshipura and Prashant Mishra
This study examines current dynamics, consolidates current knowledge, elicits trends, identifies and analyzes primary research clusters, and offers future research directions for…
Abstract
Purpose
This study examines current dynamics, consolidates current knowledge, elicits trends, identifies and analyzes primary research clusters, and offers future research directions for mutual fund marketing.
Design/methodology/approach
Using bibliographic information from the SCOPUS database, this study used sequential bibliometric (143 documents) and content analyses (37 documents). Bibliometric analysis aids descriptive analysis and science mapping, while content analysis facilitates identifying and analyzing research clusters and provides future research directions.
Findings
The study identifies publication trends, the most relevant authors, and journal articles and unveils the knowledge structures of the field. Analysis of bibliographic coupling reveals the following significant clusters: (1) socially responsible investing and investor preferences, (2) investor factors and traits and investment decisions; (3) external factors, mutual funds' performance and proxy information; (4) the role of disclosures and ratings in shaping investment choices, and (5) cognitive biases, information processing errors and investor behavior. Finally, it offers future research directions.
Research limitations/implications
Using different databases, bibliometric analysis tools, study periods or article screening criteria for the study might yield different results. However, this study's significant findings are robust to such alternatives.
Practical implications
This study summarizes primary clusters and identifies gaps in the current literature, which helps scholars, practitioners, regulators and policymakers understand the nuances of mutual funds marketing. Future studies may focus on the role of online and offline integration, using neuroscience for data m and contemporary investment behavior models.
Originality/value
This is the first study to apply a two-stage sequential hybrid review of articles published over the last decade in high-quality journals, enabling an analysis of the depth and breadth of mutual funds marketing research.
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