Matching Items (2)
Description
In this paper, I investigate whether participation in employee stock option exchange programs contains private information about future stock returns. High participation in employee stock option exchange programs is associated with negative future abnormal returns over the ensuing 12-month period. This association is moderated by the transparency of the firm's information environment: high institutional ownership and high financial statement informativeness weaken the negative relation between participation and abnormal returns. Controlling for transparency of the firms' information environment, the association between participation and future returns arises primarily from firms that allow the CEO to participate.
ContributorsMakridis, Vanessa Radick (Author) / Matejka, Michal (Thesis advisor) / Hwang, Yuhchang (Committee member) / Kaplan, Steven E (Committee member) / Arizona State University (Publisher)
Created2013
Description
This study investigates the impact of portfolio disclosure on hedge fund performance. Using a regression discontinuity design, I investigate the effect of the disclosure requirements that take effect when an investment company's assets exceed $100 million; when that occurs, a fund is required by the SEC to submit form 13F disclosing its portfolio holdings. Consistent with the argument that portfolio disclosure reveals "trade secrets" and also raises front running costs thus harms the funds that disclose, I find that there is a drop in fund performance (about 4% annually) after a fund begins filing form 13F, as well as an increase in return correlations with other hedge funds in the same investment style. The drop in performance cannot be explained by a change in the assets under management or a mean reversion in returns. Consistent with the idea that funds with illiquid holdings tend to employ sequential trading strategies, which increase the likelihood of being taken advantage of by free riders and front runners, the drop in performance is more dramatic for funds that have more illiquid holdings. In addition, I find that the incentive fees paid to fund managers are 1% higher when portfolio disclosure is required, which supports the hypothesis that investors' monitoring of portfolio holdings disciplines adverse risk-taking by fund managers and allows for higher convexity in the optimal compensation structure. Finally, there is a drop in flows into funds that file 13F, which suggests that hedge fund investors negatively value 13F disclosure. Overall, this study suggests that the cost of portfolio disclosure is economically large. It contributes to the policy debate over what constitutes optimal disclosure.
ContributorsShi, Zhen (Author) / Hertzel, Michael (Thesis advisor) / Aragon, Georges (Thesis advisor) / Coles, Jeffrey (Committee member) / Arizona State University (Publisher)
Created2011