Testing the Effect of Portfolio Holdings Disclosure in an Environment Absent of Mandatory Disclosure

Abstract

An effective portfolio disclosure regime must balance both its costs and benefits across the entire financial services industry. This study examines a number of disclosure regimes with respect to accuracy and susceptibility to copycat behaviour in an environment absent of mandatory disclosure. We find that periodic portfolio disclosure tends to underestimate true excess performance as well as idiosyncratic risk in top-quartile fund managers, with longer inter-reporting intervals tending to result in greater differences. Copycat funds following the disclosed holdings of top-tier managers significantly underperform, while copycats following bottom-tier managers significantly outperform. Our findings suggest that periodic reporting at monthly intervals or longer would not affect fund alpha generation.

Keywords: Managed funds, portfolio holdings disclosure, copycat funds

JEL Classification: G23