Did the Dodd-Frank Act Impact Hedge Fund Performance?

33 Pages Posted: 3 Feb 2014 Last revised: 28 May 2014

See all articles by Wulf A. Kaal

Wulf A. Kaal

University of St. Thomas, Minnesota - School of Law

Barbara Luppi

University of St. Thomas School of Law; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics

Sandra Paterlini

University of Trento - Department of Economics and Management

Date Written: April 23, 2014

Abstract

Title IV of the Dodd-Frank Act introduced the most significant regulatory change in the history of the hedge fund industry in the United States, boosting the permissible regulatory oversight of the hedge fund industry to an unprecedented level. Title IV and SEC implementation rules introduced a registration requirement for hedge fund managers and increased the disclosure requirements pertaining to confidential and proprietary information. We study the impact of Title IV of the Dodd-Frank Act and the SEC’s implementation of these requirements on hedge fund performance by means of Regression Discontinuity and Difference-in-Difference empirical designs.

Contrary to the hedge fund industry’s claims that increased supervision and disclosure would affect their profitability, we find statistical evidence of a positive effect of the requirements introduced by the Dodd-Frank Act on hedge fund performance. In particular, we find that the registration requirement for hedge fund advisers under the Dodd-Frank Act creates a discontinuity in hedge fund returns in March 2012. However, this effect is not persistent and is completely absorbed in the months following the registration effective date for private fund advisers under the Dodd-Frank Act. Strategic actions by fund advisers lead to a strong increase in the discontinuity around the AUM registration threshold. The effect is absorbed in later months.

Keywords: Dodd-Frank Act, Hedge Funds, Performance, Regression Discontinuity Design, Difference-in-Difference Design

JEL Classification: G23, G24, G28, K22

Suggested Citation

Kaal, Wulf A. and Luppi, Barbara and Paterlini, Sandra, Did the Dodd-Frank Act Impact Hedge Fund Performance? (April 23, 2014). U of St. Thomas (Minnesota) Legal Studies Research Paper No. 14-09. Available at SSRN: https://ssrn.com/abstract=2389416 or http://dx.doi.org/10.2139/ssrn.2389416

Wulf A. Kaal (Contact Author)

University of St. Thomas, Minnesota - School of Law ( email )

MSL 400, 1000 La Salle Avenue
Minneapolis, MN Minnesota 55403-2005
United States

Barbara Luppi

University of St. Thomas School of Law

2115 Summit Avenue
Saint Paul, MN 55105
United States

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics ( email )

Viale Berengario 51
41100 Modena, Modena 41100
Italy

Sandra Paterlini

University of Trento - Department of Economics and Management ( email )

Via Inama 5
Trento, I-38100
Italy

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