Gauging Form PF: Data Tolerances in Regulatory Reporting on Hedge Fund Risk Exposures

37 Pages Posted: 2 Aug 2015

See all articles by Mark D. Flood

Mark D. Flood

R. H. Smith School of Business, U. of Maryland

Phillip Monin

Government of the United States of America, Department of the Treasury, Office of Financial Research

Lina Bandyopadhyay

Federal Reserve Bank of Chicago

Date Written: July 30, 2015

Abstract

This paper examines the precision of the U.S. Securities and Exchange Commission’s Form PF as an instrument for measuring market risk exposures in the hedge fund industry. We introduce a novel methodology that systematically presents the measurement instrument, Form PF, with a range of simulated portfolios with observable characteristics. We assess the measurement tolerances of Form PF by examining the range of actual market risk exposures – measured directly from portfolio details – that are consistent with a given, fixed presentation on the form. We find that Form PF’s measurement tolerances are sufficiently large to allow private funds with dissimilar actual risk profiles to report similar risks to regulators. We also find that the form’s stratification by value at risk (Form PF Question 40) helps significantly to narrow the measurement tolerances.

Keywords: Hedge funds; Form PF; data quality; risk monitoring

JEL Classification: G11, G18, C80

Suggested Citation

Flood, Mark D. and Monin, Phillip and Bandyopadhyay, Lina, Gauging Form PF: Data Tolerances in Regulatory Reporting on Hedge Fund Risk Exposures (July 30, 2015). Available at SSRN: https://ssrn.com/abstract=2638319 or http://dx.doi.org/10.2139/ssrn.2638319

Mark D. Flood (Contact Author)

R. H. Smith School of Business, U. of Maryland ( email )

College Park
College Park, MD 20742
United States

Phillip Monin

Government of the United States of America, Department of the Treasury, Office of Financial Research ( email )

717 14th St NW
Washington, DC 20005
United States

Lina Bandyopadhyay

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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