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Effective delays in portfolio disclosure

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  • Seung Hee Choi
  • Maneesh Chhabria
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    Abstract

    Purpose – The timeliness of portfolio holdings information disclosure has been of interest among regulators, academics and practitioners since the Investment Company Act of 1940. The Securities Exchange Commission has been trying to strike a balance between investors' interest in timely disclosure and the potential costs associated with revealing the strategies of investment managers. The purpose of this paper is to investigate whether current rules regarding the delay in disclosure adequately protect investors, and prevent the formation of copycat portfolios that can profit from the research of the original portfolio manager. Design/methodology/approach – The paper examine the effectiveness of different delays (30, 60 or 90 days) in disclosure of holdings for a sample of large-cap, actively-managed mutual funds. Copycat portfolios are constructed based on the holdings of the original portfolios, and their returns compared against the returns (net of expenses) of the original portfolios over the corresponding time frames. Findings – The results indicate that the current delay of 60 days is sufficient to prevent such free-riding; however, shortening the delay to 30 days would adversely affect mutual fund investors. Originality/value – The paper aims to provide an answer to those debates on the effective delays in portfolio disclosure among academics and practitioners based on quantitative evidence. It also contributes to leave a guideline for regulators since the patterns of over- or under-performance of the original portfolio returns vis-à-vis the copycat portfolio returns over varying delays provide important insights about possible effects of changes in disclosure regulations.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Financial Regulation and Compliance.

    Volume (Year): 20 (2012)
    Issue (Month): 2 (May)
    Pages: 196-211

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    Handle: RePEc:eme:jfrcpp:v:20:y:2012:i:2:p:196-211

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    Related research

    Keywords: Disclosure; Financial regulation; Fund management; Fund performance; Mutual fund; Portfolio disclosure; Portfolio investment; United States of America;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    2. Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2005. "Unobserved Actions of Mutual Funds," NBER Working Papers 11766, National Bureau of Economic Research, Inc.
    3. Keim, Donald B. & Madhavan, Ananth, 1997. "Transactions costs and investment style: an inter-exchange analysis of institutional equity trades," Journal of Financial Economics, Elsevier, vol. 46(3), pages 265-292, December.
    4. Mary Margaret Myers & James M. Poterba & Douglas A. Shackelford, 2001. "Copycat Funds: Information Disclosure Regulation and the Returns to Active Management in the Mutual Fund Industry," NBER Working Papers 8653, National Bureau of Economic Research, Inc.
    5. Joshua D. Coval & Erik Stafford, 2005. "Asset Fire Sales (and Purchases) in Equity Markets," NBER Working Papers 11357, National Bureau of Economic Research, Inc.
    6. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock-Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, vol. 55(4), pages 1655-1703, 08.
    7. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Journal of Financial Economics, Elsevier, vol. 32(1), pages 23-43, August.
    8. Jonathan B. Berk & Richard C. Green, 2002. "Mutual Fund Flows and Performance in Rational Markets," FAME Research Paper Series rp100, International Center for Financial Asset Management and Engineering.
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