More Informative Disclosures, Less Informative Prices? Portfolio and Price Formation Around Quarter-Ends

Fund trades and prices vary systematically with the quarterly reporting cycle. Funds are more likely to complete the building of a position at quarter-end, which is when most funds report positions to investors, and begin building new positions afterwards. While some of the observed shift in trades is consistent with window-dressing motives, other aspects of the shift make disclosures more informative about future holdings. A coinciding decrease in commissions and increase in one-time position adjustments suggests this quarterly pattern might reduce price informativeness. Consistent with this possibility, we find that quarter-ends are associated with greater subsequent return reversals and lower price efficiency. Additional tests support a link between disclosure-driven trades and lower price efficiency