Securities Law Commons^™

Selection Neglect In Mutual Fund Advertisements, Jonathan Koehler, Molly Mercer

Faculty Working Papers

Mutual 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 (Studies 2 and 3). Study 1 identifies selection bias in mutual fund advertising by showing that the median performance rank for advertised funds is between the 79th and 100th percentile. Study 2 finds that both novice investors and financial professionals fall victim to selection neglect in …