Mandatory Portfolio Disclosure, Stock Liquidity, and Mutual Fund Performance

97 Pages Posted: 7 May 2013 Last revised: 10 May 2014

Vikas Agarwal

Georgia State University; University of Cologne - Centre for Financial Research (CFR)

Kevin Mullally

University of Alabama

Yuehua Tang

University of Florida - Department of Finance

Baozhong Yang

Georgia State University - Robinson College of Business

Date Written: May 9, 2014

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 SEC regulation in May 2004 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.

Keywords: Portfolio disclosure, Stock liquidity, Mutual funds, Fund performance

JEL Classification: G14, G23, G28

Suggested Citation

Agarwal, Vikas and Mullally, Kevin and Tang, Yuehua and Yang, Baozhong, Mandatory Portfolio Disclosure, Stock Liquidity, and Mutual Fund Performance (May 9, 2014). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2261522 or http://dx.doi.org/10.2139/ssrn.2261522

Vikas Agarwal

Georgia State University ( email )

35 Broad Street,
Suite 1221
Atlanta, GA 30303-3083
United States
404-413-7326 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://www.gsu.edu/~fncvaa

University of Cologne - Centre for Financial Research (CFR)

Albertus-Magnus Platz
Cologne, 50923
Germany

Kevin Mullally

University of Alabama ( email )

235 Alston Hall
Box 870224
Tuscaloosa, AL 35487
United States
205-348-7858 (Phone)

Yuehua Tang

University of Florida - Department of Finance ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/yuehuatang

Baozhong Yang (Contact Author)

Georgia State University - Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States
404-413-7350 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://www2.gsu.edu/~fncbyy/index.html

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