The Valuation of Hedge Funds' Equity Positions

47 Pages Posted: 24 Aug 2010 Last revised: 26 Apr 2016

Gjergji Cici

College of William and Mary - Mason School of Business

Alexander Kempf

University of Cologne - Department of Finance & Centre for Financial Research (CFR)

Alexander Puetz

University of Cologne - Department of Finance; University of Cologne - Centre for Financial Research (CFR)

Date Written: May 16, 2013

Abstract

We provide evidence on the valuation of equity positions by hedge funds. Reported valuations deviate from standard valuations based on closing prices from CRSP for roughly seven percent 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 zero, manage a higher fraction of potentially fraudulent funds, report smoother returns, and exhibit an upward spike in their December reported returns.

Keywords: Hedge Funds, Return Management, Valuation Deviations

JEL Classification: G23, G28

Suggested Citation

Cici, Gjergji and Kempf, Alexander and Puetz, Alexander, The Valuation of Hedge Funds' Equity Positions (May 16, 2013). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1664461 or http://dx.doi.org/10.2139/ssrn.1664461

Gjergji Cici (Contact Author)

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States
757-221-1826 (Phone)

Alexander Kempf

University of Cologne - Department of Finance & Centre for Financial Research (CFR) ( email )

Cologne, 50923
Germany
+49 221 470 2714 (Phone)
+49 221 470 3992 (Fax)

Alexander Puetz

University of Cologne - Department of Finance ( email )

Cologne, 50923
Germany

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

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