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Journal of Finance Vol. 70 No. 6 2015

Mandatory Portfolio Disclosure, Stock Liquidity, and Mutual Fund Performance

Vikas Agarwal; Kevin Mullally; Yuehua Tang; Baozhong Yang1,2,3,4

1 Louisiana State University · 2 Ford Foundation · 3 Georgia State University · 4 Singapore Management University

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.

DOI
10.1111/jofi.12245
Volume
70
Issue
6
Pages
2733-2776
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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