Do More Active Funds Still Earn Higher Performance? The Effect of Regulation Fair Disclosure

32 Pages Posted: 14 Dec 2018

See all articles by Edward Nelling

Edward Nelling

Drexel University - Department of Finance

Viktoriya Lantushenko

Saint Joseph's University

Date Written: December 12, 2018

Abstract

We find that the relation between fund activeness and future performance significantly weakens after the passage of Regulation Fair Disclosure (Reg FD). The effect of Active Share on four-factor alpha is more than five times smaller after this regulatory change. More active funds embed a higher degree of private information into prices of traded stocks than their less active peers do, and the extent to which these funds affect price informativeness diminishes in the post-Reg FD era. Our findings suggest that one of the channels through which more active funds generated a higher alpha before Reg FD was through the selective disclosure of information.

Keywords: mutual funds; activeness; disclosure

JEL Classification: G11, G23

Suggested Citation

Nelling, Edward F. and Lantushenko, Viktoriya, Do More Active Funds Still Earn Higher Performance? The Effect of Regulation Fair Disclosure (December 12, 2018). Available at SSRN: https://ssrn.com/abstract=3300086

Edward F. Nelling (Contact Author)

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
215.895.2117 (Phone)
215.895.2955 (Fax)

Viktoriya Lantushenko

Saint Joseph's University ( email )

5600 City Avenue,
Philadelphia, PA 19131
United States

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