It has been six and a half years since the SEC required
fund firms to include the "past performance is not an indicator of future performance" disclaimer in their fund advertisements. Is that warning effective?
A study set to be published this fall tackled that question. In the study, particpiants were shown an ad trumpeting a stock
fund that outperformed its peers in the past, and participants were asked about
their inclination to invest in that fund and expecations about its future returns.
Some participants were shown a version of the ad with the SEC's warning, others were shown
an ad without it.
"We found that the SEC's warning is completely ineffective," wrote Ahmed Taha
, law professor
at Wake Forest University and one of the study's authors, in an
"Participants who saw the ad with the warning were just as likely to invest in the fund, and had the same expectations regarding its future returns, as participants who saw the ad without the warning."
The study's authors suggest that the SEC come up with a warning that
"better informs investors of the futility of this chase."
Armie Margaret Lee
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