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Strategic Delays and Clustering in Hedge Fund Reported Returns

  • George O. Aragon and Vikram Nanda

Abstract

We use a novel database to study the timeliness of hedge fund monthly performance disclosures. Managers engage in strategic timing: poor monthly returns are reported with delay, sometimes clustered with stronger subsequent performance, suggestive of “performance smoothing.” We posit that propensity to delay could reveal operational risk and/or poor managerial quality. Consistent with this, a portfolio strategy that buys (sells) funds with historically timely (untimely) reporting delivers 3% annual-style-adjusted returns. Investor flows are lower following reporting delays, although there are potential benefits to managers from delaying reporting when performance is sufficiently poor. We conclude that timely disclosure is an important consideration for hedge fund managers and investors.

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Copyright

Corresponding author

* Aragon (corresponding author), george.aragon@asu.edu, W. P. Carey School of Business, Arizona State University; Nanda, vikram.nanda@utdallas.edu, University of Texas at Dallas and Rutgers Business School, Rutgers University.

Footnotes

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1 We thank Viral Acharya, Turan Bali, Nicolas Bollen (the referee), Stephen Brown (the editor), Roger Edelen, Francesco Franzoni, Mila Getmansky, Will Goetzmann, Bing Liang, Alexey Malakhov, Veronika Pool, Cristof Stahel, Cristian Tiu, and seminar participants at Arizona State University, the University of Arkansas, National University of Singapore, the University of Melbourne, Northeastern University, the U.S. Securities and Exchange Commission, Sabanci University, the University of New South Wales, the University of Massachusetts at Amherst, the Financial Markets Research Center Conference on Hedge Funds at Vanderbilt University, the 2013 European Finance Association Meetings, and the 2012 Paris Hedge Fund Conference for helpful comments.

Footnotes

References

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Strategic Delays and Clustering in Hedge Fund Reported Returns

  • George O. Aragon and Vikram Nanda

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