The Frequency of Mutual Fund Portfolio Disclosure

Abstract

The costs and benefits of frequent mutual fund portfolio disclosure have been a strong subject for debate. This study investigates both the determinants and potential effects of portfolio disclosure frequency by comparing funds providing voluntary quarterly disclosure to funds providing only mandatory semiannual disclosure. We find that funds with higher turnover, higher expense ratios, and higher likelihood of committing fraud, tend to disclose their holdings less frequently. These characteristics are likely proxies for a fund's informational advantage and/or agency problems. To differentiate between the information effect (i.e. the potential costs of frequent disclosure are higher for funds with informational advantage) and the agency effect (i.e. the potential benefits of frequent disclosure to investors are higher for funds with agency problems), we examine the relation between disclosure frequency and future fund performance conditioned upon fund investment skills. We use past performance as a proxy for fund investment skills. We expect the information effect to outweigh the agency effect for skilled funds and vice versa for unskilled funds. Our findings show a significant asymmetric relation between disclosure frequency and future fund performance for past winners and losers. Consistent with the information effect, past winners who disclose less frequently outperform past winners who disclose more frequently. Consistent with the agency effect, past losers who disclose less frequently underperform past losers who disclose more frequently. These findings are robust to various performance measures. Finally, we analyze the relation between disclosure frequency and fund new money to examine whether investors reward frequent disclosure. Controlling for other fund characteristics, we find higher new money growth for funds providing more frequent disclosure among poorly performing funds.