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3Chapter 3 develops a model of strategic trading to study forced liquidation.
This thesis contains three essays on delegated portfolio management and deals with issues such as impact of regulations on mutual fund performance, impact of competition on transparency in financial markets and strategic trading behaviour of agents in illiquid markets. mutual funds to disclose their portfolio holdings on a quarterly basis from semi-annual previously.
Chapter 1 analyses the impact of more frequent portfolio disclosure on mutual funds performance. This change in regulation provides a natural setting to study the impact of disclosure frequency on the performance of mutual funds.
Chapter 2 analyses the impact of competition in financial markets on incentives to re- veal information.
It finds that discretionary portfolio disclosure and advertising expenses of mutual funds decrease with competition.
Centrality of a fund in the network, as explained later, can be interpreted as a measure of how closely correlated the returns of a fund are to other funds in the market.
In the second essay we build on the foundations of the first essay to include measures of the mutual fund network in order to establish a link between persistence and correlation across funds.
The reduction in performance is higher for semi-annual funds holding illiquid assets than those holding liquid assets.
These results support the hypothesis that performance of funds with more disclosure suffers more from activities such as front running.
However, when those linkages remain from one period to another, we can consider that the returns of the funds are not correlated by chance and we expect to find persistence.
Finally, we consider how correlation across funds can help to explain herd behavior in the mutual fund industry.