The Valuation of Hedge Funds' Equity Positions
College of William and Mary - Mason School of Business
University of Cologne - Department of Finance & Centre for Financial Research (CFR)
University of Cologne - Department of Finance; University of Cologne - Centre for Financial Research (CFR)
October 9, 2012
AFA 2012 Chicago Meetings Paper
We provide evidence on the valuation of equity positions by hedge fund advisors. Reported valuations deviate from standard valuations based on closing prices from CRSP for roughly seven percent of the positions. These deviations are economically significant for about 25 percent of the hedge fund advisors. Advisors with more pronounced valuation deviations show a stronger discontinuity in their reported returns around zero, manage a higher fraction of potentially fraudulent funds, show smoother reported returns, self-report to commercial databases, and are domiciled in offshore locations. Additional tests suggest that the documented equity valuation deviations respond to past performance.
Number of Pages in PDF File: 55
Keywords: Hedge Funds, Fair Value, Return Smoothing, Valuation Manipulation, Fraud, SEC
JEL Classification: G23, G28working papers series
Date posted: August 24, 2010 ; Last revised: October 10, 2012
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