Strategic Delays and Clustering in Hedge Fund Reported Returns

50 Pages Posted: 15 Aug 2011 Last revised: 4 Jun 2013

See all articles by George O. Aragon

George O. Aragon

Arizona State University (ASU) - Finance Department

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 4, 2013

Abstract

We use a novel database to study the timeliness of hedge fund managers' voluntary disclosures of monthly fund returns. We show that funds disclose returns at a much slower rate when performance is poor. Funds often release the returns of two or more months together in clusters. These clusters exhibit poor returns in the initial months, followed by a strong performance reversal, suggesting a type of “performance smoothing”. We posit that a fund's propensity to be untimely in reporting returns could be indicative of underlying operational risk and poor management. Consistent with this, a portfolio strategy that buys (sells) hedge funds with historically timely (untimely) return reporting delivers style-adjusted returns of 4% per annum. Investor capital flows are significantly lower and less performance-sensitive following reporting delays; fund managers tend to benefit from delayed disclosure when their performance is sufficiently poor. We conclude that the timeliness of disclosure is an important consideration for hedge fund managers and investors.

Keywords: disclosure, hedge funds, clustering, return smoothing

JEL Classification: G14, G23

Suggested Citation

Aragon, George O. and Nanda, Vikram K., Strategic Delays and Clustering in Hedge Fund Reported Returns (June 4, 2013). Available at SSRN: https://ssrn.com/abstract=1910257 or http://dx.doi.org/10.2139/ssrn.1910257

George O. Aragon (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States

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