Mandatory Portfolio Disclosure, Stock Liquidity, and Mutual Fund Performance

Vikas Agarwal · Kevin Mullally · Yuehua Tang · Baozhong Yang

168 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Banking stability, regulation, efficiency Corporate Finance and Governance

Abstract

ABSTRACT We examine the impact of mandatory portfolio disclosure by mutual funds on stock liquidity and fund performance. We develop a model of informed trading with disclosure and test its predictions using the May 2004 SEC regulation requiring more frequent disclosure. Stocks with higher fund ownership, especially those held by more informed funds or subject to greater information asymmetry, experience larger increases in liquidity after the regulation change. More informed funds, especially those holding stocks with greater information asymmetry, experience greater performance deterioration after the regulation change. Overall, mandatory disclosure improves stock liquidity but imposes costs on informed investors.

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References

1997On Persistence in Mutual Fund Performance 1993Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency 2002Illiquidity and stock returns: cross-section and time-series effects 1985Continuous Auctions and Insider Trading 2003Liquidity Risk and Expected Stock Returns 1980On the Impossibility of Informationally Efficient Markets 1986Asset pricing and the bid-ask spread 1991Disclosure, Liquidity, and the Cost of Capital

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