Investors already know there are no guarantees, the study found, so the current label could be taken to mean that strong past performance is a good indicator of future results-just not a promise of it.
The researchers tested another scenario in which would-be investors were given a hypothetical warning that was more specific. This disclaimer, warning "mutual funds that have outperformed their peers in the past generally do not outperform them in the future," did a better job, although it still didn't totally dissuade the students in the test.
The study's authors concede that their study probably overstates the effectiveness of warning labels, because the subjects likely parsed the ads more carefully than someone flipping through a newspaper or a magazine would. The two who teach law-the other is an accounting professor-plan a follow-up paper questioning whether the cat-and-mouse game makes sense at all.
"If the test of a good disclosure is to get people to disregard the data," says Taha. "Why should it be permitted in the first place?"
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