Distribution Channels and Financial Advertising in the Italian Asset Management Market

Advertising has a major effect on individual investors’ decisions. Financial instruments tend to be advertised more when market sentiment is high, as investors are more willing to buy. Mechanisms affecting the relationship between market sentiment and advertising activity remain unexplored in the finance literature. Using a novel dataset of advertisements for mutual and exchange-traded funds from the main Italian financial newspaper, we show that the effect of market sentiment on financial advertisements depends upon the distribution channel. Sentiment matters only for products directly traded by the investors, such as exchange-traded funds. Conversely, for financial products – like mutual funds – distributed through a captive distribution network (bank branches and tied agents), financial advisers’ actions mitigate the effect of market sentiment on advertising activity. Overall, our findings provide some evidence of the persuasive power of financial advisers in investors’ decisions, which arguably requires increased attention from financial market regulators.