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Article
Publication date: 11 September 2017

Sitikantha Parida

The purpose of this paper is to investigate if there is any impact of reporting delays on profitability of front-running strategies against the mutual funds.

339

Abstract

Purpose

The purpose of this paper is to investigate if there is any impact of reporting delays on profitability of front-running strategies against the mutual funds.

Design/methodology/approach

The author studies if freshness of mutual fund holding information from public disclosures affects precision of flow-based front-running strategies against the funds and if the allowed 60-day reporting delay is able to protect the funds from these front-running activities against them.

Findings

Assuming no reporting delay, the author finds that returns from hypothetical front-running strategies are significant, when these are based on the most recent holding information and are not significant, when based on relatively old holding information. Interestingly, these front-running returns appear to be mostly driven by anticipated forced buys by the mutual funds (rather than anticipated forced sales). The return from a front-running strategy long on anticipated forced buys is higher when it is based on relatively illiquid assets. The author also finds that return from a front-running strategy short on anticipated forced sales is significant, when it is based on illiquid assets from relatively old holding information.

Practical implications

Hence, it appears that the allowed 60-day reporting delay is able to protect most of the funds from front-running activities against them, except for the funds holding illiquid assets from anticipated forced sales motivated front-running activities against them.

Originality/value

The paper addresses an interesting question, which has not been studied before – if freshness of fund holding information helps the front-running strategies against the funds and if the allowed reporting delay is effective in protecting the funds from these activities.

Details

Managerial Finance, vol. 43 no. 9
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 14 May 2019

Sitikantha Parida

The purpose of this paper is to investigate the impact of competition in financial markets on the frequency of portfolio disclosures by mutual funds and its implications for…

202

Abstract

Purpose

The purpose of this paper is to investigate the impact of competition in financial markets on the frequency of portfolio disclosures by mutual funds and its implications for consumer search costs.

Design/methodology/approach

The empirical analysis merges the Center for Research in Security Prices (CRSP) survivorship bias-free mutual fund database, the Thompson Financial CDA/ Spectrum holdings database and the CRSP stock price data. The sample covers the time period between 1993 and 2010 and OLS and logistic regressions are used to investigate the impact of competition on fund disclosures.

Findings

This paper finds that mutual fund disclosures decrease with market competition and this effect is amplified for funds holding illiquid assets. These results provide empirical support for the findings of Carlin et al. (2102). Mutual funds use portfolio disclosures as a marketing tool to attract investments in a tournament-like market, where superior relative performance and greater visibility are rewarded with convex payoffs. With competition, the likelihood of receiving new investments decreases for each fund and funds respond by reducing costly voluntary disclosures. The disclosure costs are higher for funds holding illiquid assets, and hence, the effect is stronger for them.

Originality/value

This paper has important policy implications for disclosures in a market where relative performance matters. The traditional view is that competition induces voluntary disclosure because entities would like to differentiate themselves from competitors, and hence, competition should increase market transparency. However, this paper sheds light on the negative consequence of competition in a tournament-like mutual fund market.

Details

Review of Accounting and Finance, vol. 18 no. 2
Type: Research Article
ISSN: 1475-7702

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