Information asymmetry literature has developed models that explain the relation
between uninformed traders and informed traders. In general, these models have shown
that first, information asymmetry is a driving force for investor buying and selling
behavior. Second, the trades of informed investors reveal some of the information they
possess suggesting that the trades of informed investors are informative to market
makers. Third, when information about a stock enters the market, the characteristics of
the firm can change, e.g., a better information environment reduces the cost of capital
(Admati, 1985; Easley and O‟Hara, 2004; Wang, 1993).
In this study, I apply information asymmetry theory to explore the trading
behavior of active equity mutual fund managers and their role as facilitators of
information. In the first essay, I study the information environment of firms mutual funds
choose to add to their holdings and how it changes after the inclusion. I identify all new
additions to the mutual fund holdings universe from 2002 to 2015 and compare them to the available universe of firms not yet owned by mutual funds. I find that active
equity mutual fund managers behave as informed investors and prefer to buy stocks with
more opaque information environments i.e., firms with larger spreads, lower trading
volume, smaller firms with more growth opportunities, and firms that tend to use more
accruals. Fund managers also show a preference for firms that have less analyst
following, those in which analysts are less likely to agree on their EPS estimates, and
firms in which analysts are more likely to err in their predictions. In other words, mutual
fund managers prefer firms that are more likely to be mispriced. Once the funds include
the firms, I document a strong improvement in their information environment. Firms
attract more analyst coverage, reduce its use of accruals, produce more guidance, increase
their market cap, and show increased turnover.
The second essay focuses on the herding behavior of mutual funds. The study is
the first to document the herding of mutual fund managers after creation of toehold
positions by portfolio managers. I use a hand-collected dataset consisting of all toehold
acquisitions reported to the SEC from 1995 to 2015 to document a strong herding
reaction of active equity mutual funds after toehold announcements. This herding
reaction is several times stronger than other mutual fund herding events reported by
previous literature. I also document that the strength of the herding reaction varies
depending on the identity of the filer or the characteristics of the firm acquired. The
herding reaction is stronger for toehold announcements of firms with a smaller market
capitalization, better growth opportunities, and those that are more illiquid. I also find
that the herding reaction is weaker after the filings of hedge fund managers. My results
support the informational herding cascade hypothesis. / Includes bibliography. / Dissertation (Ph.D.)--Florida Atlantic University, 2018. / FAU Electronic Theses and Dissertations Collection
| Identifer | oai:union.ndltd.org:fau.edu/oai:fau.digital.flvc.org:fau_40911 |
| Contributors | Carrete Rodriguez, Angel Francisco (author), Agapova, Anna (Thesis advisor), Florida Atlantic University (Degree grantor), College of Business, Department of Finance |
| Publisher | Florida Atlantic University |
| Source Sets | Florida Atlantic University |
| Language | English |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation, Text |
| Format | 129 p., application/pdf |
| Rights | Copyright © is held by the author with permission granted to Florida Atlantic University to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder., http://rightsstatements.org/vocab/InC/1.0/ |
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