Small changes in how retirement funds display information can have big effects on the way households invest their money, according to research by Chicago Booth PhD candidate Maya O. Shaton. How materials display a portfolio’s returns can affect how much an investor trades and how much risk that investor takes.

Shaton’s study exploited a change in Israeli regulation. Prior to 2010, retirement funds often displayed one-month returns in investment materials and advertising. But starting in 2010, Israeli regulators prohibited retirement funds from prominently displaying returns for periods of less than 12 months, although investors could still compute the shorter-horizon returns from available data.

Mutual funds were not subject to these regulations. This setting allowed Shaton to separate the impact of how information is presented from the effects of the actual information.

Using fund-flow as well as performance data, Shaton observes that trading volume in the retirement funds decreased by approximately 30 percent compared to the mutual-fund group under the new rules, and households shifted their retirement savings into riskier funds.

The study makes no judgment about whether limiting the one-month-returns displays caused households to make better or worse investment decisions. But Shaton notes that 12-month returns are typically smoother and potentially less “attention-grabbing” than one-month returns.

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