More Informative Disclosures, Less Informative Prices? Portfolio and Price Formation Around Quarter-Ends

66 Pages Posted: 10 Nov 2017 Last revised: 24 Mar 2020

See all articles by Todd A. Gormley

Todd A. Gormley

Washington University in St. Louis; European Corporate Governance Institute (ECGI)

Zachary Kaplan

Washington University in St. Louis - John M. Olin Business School

Aadhaar Verma

Washington University in St. Louis

Date Written: March 23, 2020

Abstract

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

Gormley, Todd A. and Kaplan, Zachary and Verma, Aadhaar, More Informative Disclosures, Less Informative Prices? Portfolio and Price Formation Around Quarter-Ends (March 23, 2020). Available at SSRN: https://ssrn.com/abstract=3067724 or http://dx.doi.org/10.2139/ssrn.3067724

Todd A. Gormley

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
(314) 935-7171 (Phone)

HOME PAGE: http://www.gormley.info

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Zachary Kaplan (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Aadhaar Verma

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO MO 63130-4899
United States

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