Copycat Funds: Information Disclosure Regulation and the Returns to Active Management in the Mutual Fund Industry

46 Pages Posted: 5 Jan 2002

See all articles by Mary Margaret Myers

Mary Margaret Myers

University of Chicago - Booth School of Business

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Douglas A. Shackelford

University of North Carolina Kenan-Flagler Business School; National Bureau of Economic Research (NBER)

John B. Shoven

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: October 2001

Abstract

Mutual funds must disclose their portfolio holdings to investors semiannually. The costs and benefits of such disclosures are a long-standing subject of debate. For actively managed funds, one cost of disclosure is a potential reduction in the private benefits from research on asset values. Disclosure provides public access to information on the assets that the fund manager views as undervalued. This paper tries to quantify this potential cost of disclosure by testing whether "copycat" mutual funds, funds that purchase the same assets as actively-managed funds as soon as those asset holdings are disclosed, can earn returns that are similar to those of the actively-managed funds. Copycat funds do not incur the research expenses associated with the actively- managed funds that they are mimicking, but they miss the opportunity to invest in assets that managers identify as positive return opportunities between disclosure dates. Our results for a limited sample of high expense funds in the 1990s suggest that while returns before expenses are significantly higher for the underlying actively managed funds relative to the copycat funds, after expenses copycat funds earn statistically indistinguishable, and possibly higher, returns than the underlying actively managed funds. These findings contribute to the policy debate on the optimal level and frequency of fund disclosure.

Suggested Citation

Meyers, Mary Margaret and Poterba, James M. and Shackelford, Douglas A. and Shoven, John B., Copycat Funds: Information Disclosure Regulation and the Returns to Active Management in the Mutual Fund Industry (October 2001). AFA 2002 Atlanta Meetings. Available at SSRN: https://ssrn.com/abstract=295799 or http://dx.doi.org/10.2139/ssrn.295799

Mary Margaret Meyers

University of Chicago - Booth School of Business ( email )

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James M. Poterba (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Douglas A. Shackelford

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
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United States
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National Bureau of Economic Research (NBER)

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John B. Shoven

Stanford University - Department of Economics ( email )

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United States
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650-328-4163 (Fax)

National Bureau of Economic Research (NBER)

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United States

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