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The Valuation of Hedge Funds’ Equity Positions

Published online by Cambridge University Press:  29 July 2016

Gjergji Cici ,
Alexander Kempf  and
Alexander Puetz
Gjergji Cici
Affiliation:
gjergji.cici@mason.wm.edu, College of William and Mary, Mason School of Business, Williamsburg, VA23187
Alexander Kempf*
Affiliation:
kempf@wiso.uni-koeln.de, University of Cologne, Department of Finance, 50923Cologne, Germany
Alexander Puetz
Affiliation:
puetz@wiso.uni-koeln.de, University of Cologne, Department of Finance, 50923Cologne, Germany.
*
*Corresponding author: kempf@wiso.uni-koeln.de
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Abstract

We provide evidence on the valuation of equity positions by hedge funds. Reported valuations deviate from standard valuations based on closing prices from the Center for Research in Security Prices for roughly 7% of the positions. These equity valuation deviations are positively related to illiquidity and price volatility of the underlying stocks. They respond to past performance and intensify after an advisor starts reporting to a commercial database. Furthermore, advisors with more valuation deviations show a stronger discontinuity in their reported returns around 0, manage a higher fraction of potentially fraudulent funds, report smoother returns, and exhibit an upward spike in their December reported returns.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 3 , June 2016 , pp. 1013 - 1037
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

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