Author Type

Graduate Student

Date of Award

2018

Document Type

Dissertation

Publication Status

Version of Record

Submission Date

October 2026

Thesis/Dissertation Advisor [Chair]

Agapova, Anna

Abstract

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.

Extent

129 p.

Comments

Includes bibliography.|Dissertation (Ph.D.)--Florida Atlantic University, 2018.|FAU Electronic Theses and Dissertations Collection|Includes bibliography.

Identifier

FA00013127

Format

pdf

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