Mutual Fund's Discretionary Portfolio Disclosure Policies

Abstract

I study the determinants and effects of mutual funds’ voluntary portfolio disclosure policies using hypotheses derived from the moral hazard, adverse selection, and informed trading literature. A majority of funds disclose their portfolio holdings at a higher frequency than the mandatory requirements. Among U.S. active, equity funds, disclosure frequency varies positively with institutional ownership, nonlinearly with performance, and negatively with risk-taking and portfolio liquidity. I also find that funds that change their voluntary portfolio disclosure policies earn higher flows without a degradation in performance. I conclude that funds’ voluntary portfolio disclosures reflect behaviors patterned by models of monitoring, countersignaling, and informed trading: portfolio disclosures help satisfy investors’ monitoring and funds’ signaling needs, while lack thereof protects against front-running and copy-catting.