Does Advertising Moderate Mutual Fund Investor Post-Purchase Decisions?

Abstract

This paper investigates how advertising influences the patterns of fund investor’s post-purchase behavior as related to fund performance. The evidence shows that fund consumer behavior is influenced by mutual fund advertising in ways similar to goods markets. We find that fund investors are willing to sell winning and are reluctant to sell losing funds. This asymmetric redemption-performance relation is in line with the disposition effect. This study also shows that consumers are less willing to sell winning funds with high fund family advertising than those with low fund family advertising, and are more reluctant to redeem losing mutual funds with high fund family advertising than those with low fund family advertising. A possible explanation for our findings is that advertising may reduce the level of cognitive dissonance, create consumer loyalty, and enhance investors’ risk tolerance, thus giving consumers more incentive to hold both losing and winning funds with high levels of advertising.