Change You Can Believe In? Hedge Fund Data Revisions
Andrew J. Patton
Duke University - Department of Economics; University of Oxford - Oxford-Man Institute of Quantitative Finance
University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance; Centre for Economic Policy Research (CEPR)
University of Oxford - Said Business School; Oxford-Man Institute of Quantitative Finance
March 22, 2013
We analyze the reliability of voluntary disclosures of financial information, focusing on widely-employed publicly available hedge fund databases. Tracking changes to statements of historical performance recorded at different points in time between 2007 and 2011, we find that historical returns are routinely revised. These revisions are not merely random or corrections of earlier mistakes; they are partly forecastable by fund characteristics. Moreover, funds that revise their performance histories significantly and predictably underperform those that have never revised, suggesting that unreliable disclosures constitute a valuable source of information for current and potential investors. These results speak to current debates about mandatory disclosures by financial institutions to market regulators.
Number of Pages in PDF File: 87
Keywords: hedge funds, disclosure, asymmetric information, finance regulation, performance
JEL Classification: D82, G14, G23, L15working papers series
Date posted: September 30, 2011 ; Last revised: March 26, 2013
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