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What Happens 'Before the Birth' and 'After the Death' of a Hedge Fund?

Bankers, Markets & Investors, Forthcoming

18 Pages Posted: 14 Jul 2014  

Vikas Agarwal

Georgia State University; University of Cologne - Centre for Financial Research (CFR)

Vyacheslav Fos

Boston College - Department of Finance

Wei Jiang

Columbia Business School - Finance and Economics

Date Written: July 10, 2014

Abstract

We analyze hedge fund performance before “birth” (i.e., the date on which a fund begins to self-report to commercial databases) and after “death” (i.e., the date on which a fund ceases to self-report to commercial databases). We find that funds initiate reporting after an extended period of high performance, but that such performance deteriorates following birth. Additionally, our analysis indicates that both fund performance and net flows decline significantly after death. We compare the characteristics of reporting and non-reporting funds, and find that funds facing higher costs to disclosure (i.e., those funds with trading strategies that are more likely to be revealed through disclosure) are less likely to disclose by reporting to commercial databases, while those funds that presumably receive greater benefits from disclosure (i.e., young and medium-sized funds ostensibly seeking funding) are most likely to initiate disclosure. Finally, with the sole exception of characteristic-based benchmarks, we do not find any evidence of the reporting funds’ performance being better than that of non-reporting funds. Our results provide a better understanding of the self-selection bias inherent in commercial databases.

Keywords: database biases, self-selection bias, reporting bias, timing bias, hedge funds, mandatory and voluntary disclosure

JEL Classification: G20, G23, G29

Suggested Citation

Agarwal, Vikas and Fos, Vyacheslav and Jiang, Wei, What Happens 'Before the Birth' and 'After the Death' of a Hedge Fund? (July 10, 2014). Bankers, Markets & Investors, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2464687

Vikas Agarwal (Contact Author)

Georgia State University ( email )

35 Broad Street,
Suite 1221
Atlanta, GA 30303-3083
United States
404-413-7326 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://www.gsu.edu/~fncvaa

University of Cologne - Centre for Financial Research (CFR)

Albertus-Magnus Platz
Cologne, 50923
Germany

Vyacheslav Fos

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Wei Jiang

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

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