Obfuscation in mutual funds

deHaan, Ed; Song, Yang; Xie, Chloe; Zhu, Christina

doi:10.1016/j.jacceco.2021.101429

Cited by 46 publications

(10 citation statements)

References 86 publications

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“…Consistent with this idea, deHaan et al. [2021] find that high‐complexity mutual funds lose market share following regulation introducing simplified summary disclosures for investors. Our paper shows that banks shift lending in response to costs associated with disclosure regulation.…”

Section: Introductionmentioning

confidence: 89%

Economic Consequences of Transparency Regulation: Evidence from Bank Mortgage Lending

Nicoletti

Zhu

2023

J of Accounting Research

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We examine the economic consequences of a rule designed to improve consumers' understanding of mortgage information. The 2015 TILA‐RESPA Integrated Disclosures rule (TRID) simplifies the mortgage disclosures provided to consumers. As a consequence, TRID‐affected mortgages become a less attractive investment opportunity to banks. Our main results document that mortgage applications affected by TRID are less likely to be approved following the rule's effective date. We find evidence consistent with both a decrease in consumers' information processing costs and an increase in banks' secondary market frictions, providing insight into the potential channels through which this reduction in mortgage credit operates. We also find that banks partially compensate for reduced mortgage lending by increasing small business lending, and that fintechs absorb mortgage demand in areas with reduced mortgage lending by banks. Our study documents real actions that firms take in response to disclosure transparency regulation and contributes to the literature on the economic consequences of such regulation.

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Section: Introductionmentioning

confidence: 89%

Economic Consequences of Transparency Regulation: Evidence from Bank Mortgage Lending

Nicoletti

Zhu

2023

J of Accounting Research

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“…Asymmetric information arising from the agent-principal relationship between the asset manager and the investor characterizes the mutual fund market (Huhmann and Bhattacharyya, 2005). The agency conflict is further exacerbated by asset managers' strategic behaviour: the mutual fund market is highly competitive, and, to protect their market power, asset managers add complexity to mutual fund pricing and obfuscate the information content of disclosures (Carlin, 2009; deHaan et al. , 2021).…”

Section: Related Research Institutional Setting and Research Questionsmentioning

confidence: 99%

“…Thus, mandating additional information disclosure may be counterproductive by failing to mitigate biased decision-making (Johnson et al, 2021) and by contributing to information overload (Black, 2008;Ceravolo et al, 2019). Moreover, the theory of competition in retail financial product markets suggests that asset managers tend to make their products more complex to protect their market power (Carlin, 2009;deHaan, 2021). These limitations may impair consumers' ability to assess product quality and compare funds in the market where thousands of funds are available to invest in (e.g.…”

Section: Introductionmentioning

confidence: 99%

“…Related research, institutional setting and research questions 2.1 Theoretical background Asymmetric information arising from the agent-principal relationship between the asset manager and the investor characterizes the mutual fund market (Huhmann and Bhattacharyya, 2005). The agency conflict is further exacerbated by asset managers' strategic behaviour: the mutual fund market is highly competitive, and, to protect their market power, asset managers add complexity to mutual fund pricing and obfuscate the information content of disclosures (Carlin, 2009;deHaan et al, 2021). The agency conflict affects retail mutual fund investors who are mostly naı €ve or unsophisticated retail investors with limited investment acumen (Capon et al, 1996).…”

Section: Introductionmentioning

confidence: 99%

“…, 2019). Moreover, the theory of competition in retail financial product markets suggests that asset managers tend to make their products more complex to protect their market power (Carlin, 2009; deHaan, 2021). These limitations may impair consumers' ability to assess product quality and compare funds in the market where thousands of funds are available to invest in (e.g.…”

Section: Introductionmentioning

confidence: 99%

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Key investor information disclosure regulation and retail mutual fund flows in the Finnish market

Turtiainen

Saastamoinen

Suhonen

et al. 2022

IJBM

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PurposeIn 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/approachThe 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.FindingsOur 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 implicationsInformation 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/valueThis paper is the first to assess the significance of KIID in actual market environment.

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