Obfuscation in mutual funds

Ed deHaan, Yang Song, Chloe Xie and Christina Zhu

Journal of Accounting and Economics, 2021, vol. 72, issue 2

Abstract: Mutual funds hold 32% of the U.S. equity market and comprise 58% of retirement savings, yet retail investors consistently make poor choices when selecting funds. Theory suggests poor choices are partially due to fund managers creating unnecessarily complex disclosures and fee structures to keep investors uninformed and obfuscate poor performance. An empirical challenge in investigating this “strategic obfuscation” theory is isolating manipulated complexity from complexity arising from inherent differences across funds. We examine obfuscation among S&P 500 index funds, which have largely the same regulations, risks, and gross returns but charge widely different fees. Using bespoke measures of complexity designed for mutual funds, we find evidence consistent with funds attempting to obfuscate high fees. This study improves our understanding of why investors make poor mutual fund choices and how price dispersion persists among homogeneous index funds. We also discuss insights for mutual fund regulation and academic literature on corporate disclosures.

Keywords: Mutual funds; Disclosure obfuscation; Strategic disclosure; Fee structures; Price dispersion; Retail investors (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:72:y:2021:i:2:s0165410121000446

DOI: 10.1016/j.jacceco.2021.101429

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