The Economics of Voluntary Portfolio Disclosure

Abstract

We study the incentives that determine mutual funds’ voluntary disclosure of their portfolio holdings. We observe that nearly half of funds voluntarily disclose their portfolios at a higher frequency than the regulatory mandate. Among U.S. active domestic equity funds, voluntary disclosure varies positively with institutional ownership and load fees, unimodally with past performance, and negatively with investment risk-taking and portfolio illiquidity. We then study the effect of voluntary disclosure on investor flows, fund performance, and manager risk-taking. We find that voluntary portfolio disclosure increases the sensitivity of investor flows to fund performance. However, we do not find evidence that it negatively impacts future fund performance or risk-taking. We conclude that funds’ voluntary portfolio disclosure policies reflect the economics of investor monitoring, strategic signaling, and informed trading in delegated portfolio management.

Keywords: mutual funds, portfolio disclosure; portfolio holdings

JEL Classification: G1; G2; G28