Regulating Dynamic Risk in Changing Market Conditions

13 W&M Bus. L. Rev. 775 (2022)

91 Pages Posted: 16 Sep 2021 Last revised: 11 Jan 2023

See all articles by Susan Smelcer

Susan Smelcer

Georgia State University - College of Law

Anne M. Tucker

Georgia State University College of Law

Yusen Xia

Georgia State University - Robinson College of Business

Date Written: April 1, 2022

Abstract

How successful are the SEC’s attempts to regulate dynamic risk in financial markets? Using mutual fund disclosure data from two financial shocks—the Puerto Rican debt crisis and COVID-19—we find evidence that SEC open-ended regulations, like the obligation to disclose changing market conditions, are largely successful in regulating dynamic, future risk. We find evidence of widespread and, often, detailed disclosures for new risks. But not all funds disclose new risks, and those that do vary in specificity ranging from individualized to generic disclosures. This creates perverse incentives for funds to opt-out of disclosure or downplay threats with boilerplate language when new risks are emerging. We recommend several SEC interventions to improve dynamic risk disclosures including empirically monitoring disclosures, issuing guidance when problematic variation is observed, and enforcing disclosure standards.

Keywords: securities, mutual funds, disclosure, dynamic risk, COVID-19, investing

JEL Classification: K22, G10, G18, G22

Suggested Citation

Smelcer, Susan and Tucker, Anne M. and Xia, Yusen, Regulating Dynamic Risk in Changing Market Conditions (April 1, 2022). 13 W&M Bus. L. Rev. 775 (2022), Available at SSRN: https://ssrn.com/abstract=3905506 or http://dx.doi.org/10.2139/ssrn.3905506

Susan Smelcer

Georgia State University - College of Law ( email )

P.O. Box 4037
Atlanta, GA 30302-4037
United States

Anne M. Tucker (Contact Author)

Georgia State University College of Law ( email )

P.O. Box 4037
Atlanta, GA 30302-4037
United States
(404) 413- 9179 (Phone)

Yusen Xia

Georgia State University - Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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