Does Portfolio Disclosure Make Money Smarter?

We provide causal evidence that mandatory portfolio disclosure helps investors evaluate and select hedge fund managers. Using a staggered difference-in-differences analysis, we demonstrate that investor capital flows better predict fund performance among funds that publicly disclose their portfolio holdings. Additional cross-sectional analyses suggest that this gain in selection ability varies with the informational value of disclosure. Furthermore, examining investor-level allocations, we find that institutional investors earn higher returns on their allocations to disclosing funds. Overall, these results help contribute to the cost-benefit analysis of mandatory portfolio disclosure.