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Mandatory Portfolio Disclosure, Stock Liquidity, and Mutual Fund Performance
Author(s) -
AGARWAL VIKAS,
MULLALLY KEVIN A.,
TANG YUEHUA,
YANG BAOZHONG
Publication year - 2015
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12245
Subject(s) - market liquidity , business , portfolio , mutual fund , information asymmetry , stock (firearms) , monetary economics , open end fund , closed end fund , institutional investor , financial system , finance , economics , corporate governance , mechanical engineering , engineering
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.