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

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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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Notes

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

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

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

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

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

  6. For example Lamoureux and Lastrapes (1990).

  7. 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.

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

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

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Acknowledgments

We thank Paul Brockman, Sandra Mortal, Raynolde Pereira, Marilyn K. Wiley, Xuemin (Sterling) Yan, Tracey Chunqi Zhang, seminar participants at the University of Missouri, the Southern Finance Conference and China International Conference in Finance as well C.F. Lee (editor) and an anonymous referee for useful comments and suggestions; Sandra Mortal for model implementation assistance and Ron Howren for computational assistance.

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Authors and Affiliations

  1. University of Missouri, 512 Cornell Hall, Columbia, MO, 65211, USA

    Gary McCormick

  2. Department of Finance, University of Missouri, 403B Cornell Hall, Columbia, MO, 65211, USA

    Dan W. French

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  1. Gary McCormick
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Correspondence to Gary McCormick.

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McCormick, G., French, D.W. Effects of frequent information disclosure: the case of daily net asset value reporting for closed-end investment companies. Rev Quant Finan Acc 46, 107–122 (2016). https://doi.org/10.1007/s11156-014-0463-3

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