More Informative Disclosures, Less Informative Prices? Portfolio and Price Formation Around Quarter-Ends
66 Pages Posted: 10 Nov 2017 Last revised: 24 Mar 2020
Date Written: March 23, 2020
Fund trades and prices vary systematically with the quarterly reporting cycle. Funds are more likely to complete the building of a position at quarter-end, which is when most funds report positions to investors, and begin building new positions afterwards. While some of the observed shift in trades is consistent with window-dressing motives, other aspects of the shift make disclosures more informative about future holdings. A coinciding decrease in commissions and increase in one-time position adjustments suggests this quarterly pattern might reduce price informativeness. Consistent with this possibility, we find that quarter-ends are associated with greater subsequent return reversals and lower price efficiency. Additional tests support a link between disclosure-driven trades and lower price efficiency.
Keywords: Portfolio Disclosure, Return Reversal, Market Efficiency, Price Pressure
JEL Classification: G14, G23, G11, G12
Suggested Citation: Suggested Citation