How do retail investors respond to summary disclosure? Evidence from mutual fund factsheets

Alper Darendeli ()
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Alper Darendeli: Nanyang Technological University

Review of Accounting Studies, 2025, vol. 30, issue 2, No 5, 1222-1266

Abstract: Abstract Mutual funds regularly issue factsheets to communicate their performance in a short summary form. I investigate whether the release of factsheets in Morningstar plays a role in the trading behavior of retail investors. I find that retail investors react more to performance measures in factsheets when these are disseminated through Morningstar, and therefore made salient, than when they are not. The results cannot be explained by dissemination via alternative platforms, fund advertising, marketing by financial intermediaries, funds’ anticipation of investor reaction, or selective reporting of performance measures. Additional analysis suggests that factsheets do not help improve retail investors’ investment allocation decisions; if anything, I find some evidence consistent with overreaction to performance measures disseminated via factsheets, while mandatory fund disclosures tend to mitigate this overreaction. Taken together, these findings contribute to a more nuanced understanding of summary disclosures by highlighting the unintended consequence of investor overreaction.

Keywords: Summary disclosure; Retail investors; Mutual fund; Factsheets; Information dissemination (search for similar items in EconPapers)
JEL-codes: G10 G11 G23 K22 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11142-024-09849-1

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