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Journal of Financial and Quantitative Analysis Vol. 52 No. 1 2017

Strategic Delays and Clustering in Hedge Fund Reported Returns

George O. Aragon1,2,3,4,5,6; Vikram K. Nanda1,2,3,4,5,6

1 United States Securities and Exchange Commission · 2 National University of Singapore · 3 Vanderbilt University · 4 University of Massachusetts Amherst · 5 Rutgers Sexual and Reproductive Health and Rights · 6 Arizona State University

Abstract

We use a novel database to study the 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, although there are potential benefits to managers from delaying reporting when performance is sufficiently poor. We conclude that timely disclosure is an important consideration for hedge fund managers and investors.

DOI
10.1017/s0022109016000715
Volume
52
Issue
1
Pages
1-35
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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