Regulatory Oversight and Return Misreporting by Hedge Funds

34 Pages Posted: 4 May 2013 Last revised: 8 Apr 2016

See all articles by Stephen G. Dimmock

Stephen G. Dimmock

National University of Singapore; Asian Bureau of Finance and Economic Research (ABFER)

William Christopher Gerken

University of Kentucky - Finance

Date Written: May 7, 2015

Abstract

We use SEC rule changes to show that regulatory oversight reduces return misreporting by hedge funds. Specifically, we use a 2004 rule change that expanded SEC oversight of hedge funds and the 2006 revocation of this rule. Differences-in-differences tests show that, following the rule change, misreporting by newly regulated funds decreased. After revocation, funds that exited the regulatory system increased misreporting relative to funds that remained registered. Placebo tests show no change in misreporting by foreign funds exempt from the rule change. We show that regulatory oversight increased the level of flows and decreased the sensitivity of flows to underperformance.

Keywords: Return misreporting, Hedge funds, Hedge fund regulation, Hedge fund registration

JEL Classification: G20, G23, G28, K22

Suggested Citation

Dimmock, Stephen G. and Gerken, William Christopher, Regulatory Oversight and Return Misreporting by Hedge Funds (May 7, 2015). Available at SSRN: https://ssrn.com/abstract=2260058 or http://dx.doi.org/10.2139/ssrn.2260058

Stephen G. Dimmock (Contact Author)

National University of Singapore ( email )

15 Kent Ridge Drive
BIZ 1 #7-63
Singapore, 119245
Singapore

Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

William Christopher Gerken

University of Kentucky - Finance ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States

HOME PAGE: http://www.willgerken.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
238
Abstract Views
1,570
rank
154,810
PlumX Metrics