Strategic Delays and Clustering in Hedge Fund Reported Returns

55 Pages Posted: 3 Nov 2014

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 30, 2014

Abstract

We use a novel database to study timeliness of hedge-fund monthly performance disclosures. Managers engage in strategic timing: poor monthly returns are reported with delay, sometimes clustered with stronger subsequent performance, suggestive of ‘performance smoothing’. We posit that propensity to delay could reveal operational-risk and/or poor-managerial quality. Consistent with this, a portfolio strategy that buys (sells) funds with historically timely (untimely) reporting delivers 3% annual-style-adjusted returns. Investor flows are lower following reporting delays, though there are potential benefits to managers from delaying when performance is sufficiently poor. We conclude timely disclosure is an important consideration for hedge-fund managers and investors.

Keywords: hedge funds, smoothing, clustering, strategic delay, disclosure

JEL Classification: D82, G14, G23, G30, M41

Suggested Citation

Aragon, George O. and Nanda, Vikram K., Strategic Delays and Clustering in Hedge Fund Reported Returns (June 30, 2014). Available at SSRN: https://ssrn.com/abstract=2517611 or http://dx.doi.org/10.2139/ssrn.2517611

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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