Revisiting Mutual Fund Portfolio Disclosure

Abstract

We document that CRSP and Thomson contain many voluntarily reported mutual fund portfolios that are not in SEC filings while, additionally, CRSP and Thomson are missing many SEC mandated portfolios available in SEC filings. We document that the voluntary disclosures are likely driven by convenience rather than duplicity. Although mandated portfolios contain securities with more return momentum, we find use of SEC or Thomson data lead to similar empirical findings. CRSP, however, contains inaccurate position information prior to 2008. Our findings have important implications, such as highlighting a 35% increase in observed manager trading by combining data sources. (JEL G11, G23)The authors thank the Editor, Laura Starks, and an anonymous referee for extensive, helpful comments and Meerae Park, Teri Wang, Chengdong Yin, and Thomas Howland for outstanding research assistance. The authors acknowledge and thank seminar participants at Babson College, UC Irvine, and the 2012 NFA Annual Meeting for helpful comments. All errors are the responsibility of the authors. Send correspondence to Christopher Schwarz, University of California -Irvine, Paul Merage School of Business, SB2 329, Irvine, CA 92697; telephone: 949-824-0936. E-mail: cschwarz@uci.edu. 1 Financial research has greatly benefited from data availability. Instead of hand-collecting data, researchers have largely relied on database vendors, such as the Center for Research in Security Prices (CRSP) and Thomson Financial. Over time, researchers have examined these commercial databases for both their coverage and their reliability. For example, the accuracy of the CRSP Stock Databases has been improved through the documentation of various data issues (e.g., Rosenberg and Houglet 1974;Bennin 1980;Shumway 1997;Canina et al. 1998;Shumway and Warther 1999). Elton, Gruber, and Blake (2001) Gruber, and Blake 2011, 2012) find that increased disclosure frequency is important when examining managers' trading performance.Our findings make several contributions to the commercial database coverage and reliability research and asset management literatures. First, we document that commercial mutual fund portfolio databases are not replicas of the mandatory SEC-filed portfolios; rather, they are combinations of voluntary and mandatory disclosures. More importantly, we find these databases do not contain all mandatory disclosures available through SEC filings for funds they cover.Second, we document that incentives such as convenience can lead to financial firms providing more disclosure information than is required by regulatory agencies. Third, the use of CRSP portfolio data prior to the fourth quarter of 2007 should be avoided. Fourth, we demonstrate a significant increase in observed manager trading by combining multiple mutual fund portfolio databases.Finally, although we find no significant empirical differences, researchers should perform their analyses using various portfolio datasets as a robustness check because some findings could be sensitive to database selecti...

The Valuation of Hedge Funds’ Equity Positions

“…For example, positions with a deviation of at least 10% make up 0.40% of all hedge fund positions but only 0.17% of the mutual fund positions. These results are consistent withSchwarz and Potter (2015), who report that 0.20% of all mutual fund positions exhibit deviations of at least 10%. Furthermore, we also document that the average magnitude of hedge fund valuation deviations exceeds the average magnitude of mutual fund valuation deviations by almost a factor of 3.…”

Cross-Asset Information Synergy in Mutual Fund Families

“…Two concerns motivate us to start our sample from 2008Q1. First, Schwarz and Potter (2016) compare the quality of mutual funds between CRSP and SEC and suggest "the use of CRSP portfolio data prior to the fourth quarters of 2007 should be avoided." A second and more important concern is that CRSP has an issue of not including historical corporate bond holding information before 2008 (they do have bond fund performance data).…”

Institutional trading and Abel Noser data

“…The date this portfolio information is filed with EDGAR is known as the "file date," and the difference between the file date and report date is often known as the "reporting delay. " Agarwal, Mullally, Tang, and Yang (2015) and Schwarz and Potter (2016) provide detailed descriptions of reporting requirements for mutual funds.…”