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Better Kept in the Dark? Portfolio Disclosure and Agency Problems in Mutual Funds

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  • Dyakov, Teodor
  • Harford, Jarrad
  • Qiu, Buhui

Abstract

We study the agency implications of increased disclosure using a regulatory change in the mutual fund industry as an experimental setting. This quasi-natural experiment mandated more frequent portfolio disclosure, which we show imposes managerial skill-reassessment risks from investors on funds with high relative performance volatility. In turn, this risk translates into greater agency costs to investors. We show that high-volatility funds, relative to low-volatility funds, responded to the increased skill-reassessment risk after regulation with an increase in management fees and a decrease in risk taking. These actions get transmitted to fund investors in the form of inferior net performance.

Suggested Citation

  • Dyakov, Teodor & Harford, Jarrad & Qiu, Buhui, 2022. "Better Kept in the Dark? Portfolio Disclosure and Agency Problems in Mutual Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(4), pages 1529-1563, June.
    • Handle: RePEc:cup:jfinqa:v:57:y:2022:i:4:p:1529-1563_9
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