Review of Financial Studies 2026
Do Mutual Funds Walk the Talk? Evidence from Fund Risk Disclosure
Abstract
We examine the informativeness of fund risk disclosure by combining fund returns and textual data. We develop a novel measure, INF, to capture the explanatory power of disclosed risks for fund returns. Average INF is 55% after controlling for market risk and remains 26–29% after excluding risks related to fund name or strategy. We explain variations in INF through disclosure costs and benefits: (1) Funds with less informative disclosures face SEC comment letters and reduced flow, (2) informative disclosures attract institutional flows, and (3) performance concerns may disincentivize disclosure. Overall, funds face trade-offs between transparency and maintaining their competitive advantage.
- DOI
- 10.1093/rfs/hhag020
- Language
- en
- Sources
- crossref openalex