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Do investors show an attentional bias toward past performance? An eye-tracking experiment on visual attention to mutual fund disclosures in simplified fund prospectuses


Hüsser, Andreas; Wirth, Werner (2014). Do investors show an attentional bias toward past performance? An eye-tracking experiment on visual attention to mutual fund disclosures in simplified fund prospectuses. Journal of Financial Services Marketing, 19(3):169-185.

Abstract

This study examines the cognitive processes underlying investors’ extrapolations of past fund performance and whether investors’ attention patterns may explain their return-chasing behaviors. We measured the attention that investors paid to mutual fund disclosures in a simplified fund prospectus using unobtrusive infrared eye tracking. Results suggest that prior fund performance, which is normatively irrelevant information and not useful in predicting future performance, received considerable attention from investors. More interestingly, the impact of prior fund performance on investors’ purchasing intentions was fully mediated through expected returns and attention paid to past performance information. The results indicate that investors apparently believe in performance persistence or in a ‘hot hand’ effect, and that mutual fund purchases are driven by salient information such as superior performance. Moreover, we tested the disclaimer mandated by regulatory bodies, which warns that past performance does not guarantee future results. We found that the disclaimer was ineffective in reducing investors’ extrapolation biases, despite the fact that the disclaimer was attended to and properly encoded by investors.

This study examines the cognitive processes underlying investors’ extrapolations of past fund performance and whether investors’ attention patterns may explain their return-chasing behaviors. We measured the attention that investors paid to mutual fund disclosures in a simplified fund prospectus using unobtrusive infrared eye tracking. Results suggest that prior fund performance, which is normatively irrelevant information and not useful in predicting future performance, received considerable attention from investors. More interestingly, the impact of prior fund performance on investors’ purchasing intentions was fully mediated through expected returns and attention paid to past performance information. The results indicate that investors apparently believe in performance persistence or in a ‘hot hand’ effect, and that mutual fund purchases are driven by salient information such as superior performance. Moreover, we tested the disclaimer mandated by regulatory bodies, which warns that past performance does not guarantee future results. We found that the disclaimer was ineffective in reducing investors’ extrapolation biases, despite the fact that the disclaimer was attended to and properly encoded by investors.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:06 Faculty of Arts > Institute of Mass Communication and Media Research
Dewey Decimal Classification:700 Arts
Uncontrolled Keywords:limited attention; extrapolation bias; mutual fund disclosure; information processing; consumer protection; advertising
Language:English
Date:1 September 2014
Deposited On:12 Dec 2014 14:04
Last Modified:05 Apr 2016 18:38
Publisher:Palgrave Macmillan Ltd.
ISSN:1363-0539
Funders:Forschungskredit der Universität Zürich
Publisher DOI:https://doi.org/10.1057/fsm.2014.20

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