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Improved mutual fund investment choice architecture
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Newall, Philip and Parker, Katie N. (2019) Improved mutual fund investment choice architecture. Journal of Behavioral Finance, 20 (1). 96-106 . doi:10.1080/15427560.2018.1464455 ISSN 1542-7560.
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Official URL: https://doi.org/10.1080/15427560.2018.1464455
Abstract
Two choice architecture interventions were explored to debias investors’ irrational preference for mutual funds with high past returns rather than funds with low fees. A simple choice task was used involving a direct trade-off between maximizing past returns and minimizing fees. In the first intervention, warning investors that, “Some people invest based on past performance, but funds with low fees have the highest future results” was more effective than three other disclosure statements, including the US financial regulator’s, “Past performance does not guarantee future results”. The second intervention involved converting mutual fund annual percentage fees into a 10 year dollar cost equivalent. This intervention also improved investors’ fee sensitivity, and remained effective even as past returns increased. Financially literate participants were surprisingly more likely to irrationally maximize past returns in their investment choices.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||
Divisions: | Faculty of Science, Engineering and Medicine > Engineering > WMG (Formerly the Warwick Manufacturing Group) | ||||||||
Library of Congress Subject Headings (LCSH): | Mutual funds, Investments, Finance, Personal | ||||||||
Journal or Publication Title: | Journal of Behavioral Finance | ||||||||
Publisher: | Routledge | ||||||||
ISSN: | 1542-7560 | ||||||||
Official Date: | 2019 | ||||||||
Dates: |
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Volume: | 20 | ||||||||
Number: | 1 | ||||||||
Page Range: | 96-106 | ||||||||
DOI: | 10.1080/15427560.2018.1464455 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Reuse Statement (publisher, data, author rights): | This is an Accepted Manuscript of an article published by Taylor & Francis in Journal of Behavioral Finance on 18 May 2018, available online: https://doi.org/10.1080/15427560.2018.1464455. | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 8 October 2018 | ||||||||
Date of first compliant Open Access: | 18 November 2019 | ||||||||
Related URLs: | |||||||||
Open Access Version: |
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