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Review of Quantitative Finance and Accounting

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01-01-2016 | Original Research

Effects of frequent information disclosure: the case of daily net asset value reporting for closed-end investment companies

Authors: Gary McCormick, Dan W. French

Published in: Review of Quantitative Finance and Accounting | Issue 1/2016

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Abstract

There are two competing hypotheses regarding the effects of increased financial disclosure. One states that increased disclosure leads to decreased information asymmetry and more efficient pricing resulting in reduced bid-ask spreads, volatility and illiquidity. The other says that increased disclosure places additional burdens on traders leading to increased transactions costs and volatility. This paper examines the effects of more-frequent reporting for the case of closed-end funds that voluntarily changed their net-asset-value reporting from weekly to daily beginning in 1998. Multivariate analyses indicate a decrease in asymmetric information following initiation of daily reporting as evidenced by lower spreads, greater transactions volume, reduced volatility and decreased illiquidity. We conclude that closed-end fund daily net-asset-value reporting provides an example of information disclosure that provides useful information to investors and reduces information asymmetry.

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See Dimson and Minio-Kozerski (1999) for an extensive review.

We thank the referee for suggesting the use of the Amihud measure.

The stocks that are used to calculate market illiquidity follow the criteria in Amihud (2002).

Categories are convertible, mortgage/loan, municipal, U.S. Bond, U.S. equity, world bond, and world equity.

For example: Stoll (1978), Glosten and Milgrom (1985) and Admati and Pfleiderer (1988).

For example Lamoureux and Lastrapes (1990).

Trades are classified by applying the Lee and Ready (1991) algorithm. As in Hasbrouck (1991), trades at the same time and price are aggregated as a single trade.

See Black (1976), Christie (1982), French et al. (1987), and Glosten et al. (1993).

See Amihud (2002) which uses mean adjusted illiquidity as the appropriate measure for individual stocks.

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Title: Effects of frequent information disclosure: the case of daily net asset value reporting for closed-end investment companies
Authors: Gary McCormick
Dan W. French
Publication date: 01-01-2016
Publisher: Springer US
Published in: Review of Quantitative Finance and Accounting / Issue 1/2016
Print ISSN: 0924-865X
Electronic ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-014-0463-3

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