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Truth in Mutual Fund Advertising: Evidence on Future Performance and Fund Flows

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We examine a sample of 294 mutual funds that are advertised in Barron's or Money magazine. The preadvertisement performance of these funds is significantly higher than that of the benchmarks. We test whether the sponsors select funds to signal continued superior performance or they use the past superior performance to attract more money into the funds. Our analysis shows that there is no superior performance in the postadvertisement period. Thus, the results do not support the signaling hypothesis. On the other hand, we find that the advertised funds attract significantly more money in comparison with a group of control funds.
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Document Type: Research Article

Affiliations: 1: A. B. Freeman School of Business, Tulane University 2: William E. Simon Graduate School of Business Administration, University of Rochester

Publication date: 2000-04-01

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