The Potential Effects of Mandatory Portfolio Holdings Disclosure in Australia and New Zealand
40 Pages Posted: 19 Aug 2012 Last revised: 15 Oct 2012
Date Written: August 19, 2012
This research supports the case for introducing mandatory portfolio holdings disclosure regimes in Australia and New Zealand. Of the 22 nations (constituents of the MSCI World Index) surveyed in the 2011 Morningstar Global Investors Report, these are the only two countries that do not require disclosure. Even without compulsory disclosure, some funds do choose to disclose. We examine the potential effects of mandated holdings disclosure on mutual fund returns by using the voluntary holdings disclosures as a proxy for mandatory disclosure.
We find that low-ranked (on abnormal returns) New Zealand funds following the Global Financial Crisis (GFC), and Australian low-rank funds both before and after the Crisis, would have improved performance with mandatory disclosure. In contrast, returns would drop for Australian high-rank funds. This suggests that disclosure may be costly for high-rank funds due to front-running, while it provides benefits for low-rank funds due to the enhanced monitoring abilities of investors.
We also examine whether investors care about disclosure, by measuring fund flows. We find evidence that following the GFC, the importance of transparency has increased for investors in high-rank New Zealand funds, while investors in Australian funds show no preference for disclosure after the Crisis. On balance, we believe the introduction of mandatory disclosure schemes in Australia and New Zealand would represent a significant advance for the industry and bring benefits to investors.
Keywords: disclosure, voluntary disclosure, mandatory disclosure, portfolio disclosure, portfolio holdings, fund performance, fund flows, front-running, agency cost, Australia, New Zealand
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