2016-11-03T14:11:40

This paper studies the-confidential holdings‖ of institutional investors, especially hedge funds, where the quarter-end equity holdings are disclosed with a delay through amendments to the Form 13F and are usually excluded from the standard databases. Evidence supports private information as the dominant motive for confidentiality. Funds managing large risky portfolios with non-conventional strategies seek confidentiality more frequently. Stocks in these holdings are disproportionately associated with information-sensitive events or share characteristics indicating greater information asymmetry. Confidential holdings exhibit superior performance up to twelve months. The probability of SEC approval is associated with the fraction of portfolios seeking confidentiality and the filer's track records.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Such disclosure requirements have broad implications. On one hand, mandatory portfolio disclosure can help improve the transparency of capital markets. On the other hand, it can potentially reduce fund managers' incentives to collect and process information. To shed light on such costs and benefits of mandatory portfolio disclosure by mutual funds, we examine how disclosure affects (i) the liquidity of disclosed stocks and (ii) fund performance. Terms of use: Documents in EconStor mayOne of the challenges we face is the difficulty in identifying the causal effects of portfolio disclosure on stock liquidity and fund performance. We overcome this challenge by using a Securities Exchange Commission (SEC)-mandated regulation change in May 2004 regarding the disclosure requirements for mutual funds. This change forced mutual funds to increase their portfolio disclosure from a semiannual to a quarterly frequency. We use this regulation change as a quasi-natural experiment to identify the effects of funds' portfolio disclosure on stock liquidity and fund performance.We motivate our empirical analyses using the theoretical literature on mandatory disclosure and informed trading. Huddart, Hughes, and Levine (2001) extend the Kyle (1985) model and study mandatory disclosure of trades by informed traders. We develop a model that builds on these two models and allows for different mandatory disclosure frequencies. 2We analyze the impact of a change in disclosure frequency on stock liquidity and informed trader's profits and produce several testable predictions. First, our model predicts that more frequent disclosure by informed traders improves market liquidity as measured by market depth, namely the inverse of the Kyle (1985) lambda.The intuition is that, with mandatory disclosure, the market maker can infer information from the disclosed positions of informed traders as well as from the aggregate order flows, which reduces the impact of informed trades on prices. Second, the liquidity improvement should be greater for stocks subject to higher information asymmetry. Third, our model predicts that the informed trader's profits are negatively related to disclosure frequency because the market's learning of disclosed trades limits the trader's ability to reap the full benefits of his information. Finally, the informed trader's profit drop should be positively related to both the level of information asymmetry in the stocks the trader holds and the time it takes th...

This paper studies the “confidential holdings” of institutional investors, especially hedge funds, where the quarter‐end equity holdings are disclosed with a delay through amendments to Form 13F and are usually excluded from the standard databases. Funds managing large risky portfolios with nonconventional strategies seek confidentiality more frequently. Stocks in these holdings are disproportionately associated with information‐sensitive events or share characteristics indicating greater information asymmetry. Confidential holdings exhibit superior performance up to 12 months, and tend to take longer to build. Together the evidence supports private information and the associated price impact as the dominant motives for confidentiality.

This paper empirically studies portfolio manager compensation structures in the U.S. mutual fund industry. Using a unique hand-collected dataset on over 4,000 mutual funds, we find that about threequarters of portfolio managers receive explicit performance-based incentives from the investment advisors. Our cross-sectional investigation suggests that portfolio manager compensation structures are broadly consistent with an optimal contracting equilibrium. In particular, explicit performancebased incentives are more prevalent in scenarios where this incentive mechanism is more valuable or alternative incentive mechanisms, such as labor market discipline, are less effective. Specifically, our results show that explicit performance-based incentives are more common when (i) the investment advisors are larger or have more complex business models, (ii) the fund returns are less volatile, (iii) the portfolio managers are not the stakeholders of the advisors, (iv) the funds are managed by a team rather than an individual, and (v) the funds are not outsourced to an external sub-advisory firm. Overall, our study provides novel empirical evidence on optimal contracting in the delegated asset management industry.