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Title: Three essays on cost and benefit of public disclosure in asset management industry
Authors: Xenomorph, Stig
Degree: Ph.D.
Issue Date: 2020
Abstract: This thesis consists of three essays. The commonality of the essays is that I investigate the cost and beneft of public disclosure in the asset management industry. In the first essay, I examine how investors react to the public disclosure of the SEC comment letters. The second essay studies the impact of regulatory oversight on mutual fund risk-taking behaviors. In the third essay, we investigate whether mandatory portfolio disclosure enables investors to better evaluate and select hedge fund managers. For the first essay, I find that underlying mutual funds experience significantly lower net flow post-disclosure if the comment letters disclosed by the fund management company are requested more by investors. In addition, funds with higher investor attention underperform subsequently. Taken together, my findings suggest that the SEC review process can help investor make better investment decision. Taking advantage of the unique disclosure structure of the SEC comment letter, I document that underlying mutual funds experience lower net flow during the non-public pre-disclosure period, but not after the public disclosure. Given the usefulness of the SEC comment letter and the flow reaction during the pre-disclosure period, I argue that the SEC may want to consider a timelier manner in disclosing the comment letters. In the second essay, I find that during the SEC review process, underlying mutual funds do not change their risk-taking behaviors; after resolution of the review process, however, underlying mutual funds take more risks. In addition, the shift in risk-taking behaviors after resolution does not produce superior fund returns. A further investigation reveals that the topic of the comment letters also matters. Specifically, funds that receive non-risk-related comment letters reduce risk-taking during the review process but increase risk-taking after resolution of the review process; on the other hand, funds that receive risk-related comment letters do not drastically change their risk-taking behaviors. Overall, the first two chapters document the cost and benefit of regulatory oversight and public disclosure of comment letters. In the third essay, we provide causal evidence that mandatory hedge fund portfolio disclosure helps investors evaluate and select managers. We study investor purchasing and selling decisions, captured by hedge fund fows. After a fund begins filing Form 13F with the Securities and Exchange Commission, we find that investor flows are better able to predict fund performance (i.e., money becomes "smarter"). We analyze cross-sectional differences in the precision, usefulness, and access of information, and find evidence that the increase in smart money is driven by the information channel. In addition, using a subset of funds of hedge funds ("FoFs") for which we have holdings data, we find that FoFs earn superior returns on their portfolios of 13F-filing hedge funds (relative to their positions in non-filing hedge funds). These results help contribute to the cost-benefit analysis of mandatory portfolio disclosure. Although the three essays are independent, they all investigate the cost and benefit of public disclosure in asset management industry. By showing the evidence, my essays provide policy makers with a more balanced understanding of the impact of public disclosure.
Subjects: Disclosure of information
Financial services industry
Hong Kong Polytechnic University -- Dissertations
Pages: xiii, 160 pages
Appears in Collections:Thesis

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