Publication Type
Working Paper
Publication Date
2013
Abstract
This paper studies the impact of mandatory portfolio disclosure of mutual funds on the liquidity of disclosed stocks and on fund performance. We consider a theoretical model of informed trading with different mandatory disclosure frequencies. Using a regulation change in May 2004 that increased the frequency of mandatory disclosure, we find evidence consistent with the model’s predictions. First, stocks with higher fund ownership experience a larger increase in liquidity as compared to other stocks subsequent to the mandatory increase in disclosure frequency, especially for stocks disclosed by more informed funds or subject to greater information asymmetry. Second, better performing funds experience a greater drop in their abnormal performance following the regulation change, particularly when they hold stocks with greater information asymmetry or when they take longer to complete their trades. Taken together, our evidence suggests that mandatory portfolio disclosure improves market quality by increasing stock liquidity but imposes costs on informed investors.
Keywords
Portfolio disclosure, Stock liquidity, Mutual funds, Fund performance
Discipline
Business
Research Areas
Finance
Citation
Agarwal, Vikas; Mullally, Kevin; TANG, Yuehua; and Yang, Baozhong.
Mandatory Portfolio Disclosure, Stock Liquidity, and Mutual Fund Performance. (2013). Research Collection Lee Kong Chian School Of Business (SMU Access Only).
Available at: https://ink.library.smu.edu.sg/lkcsb_research_smu/151
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
Comments
This paper got revision request in Sep. 2013 (Revise & Resubmit) at the Journal of Finance.