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Journal of Financial and Quantitative Analysis Vol. 51 No. 3 2016

The Valuation of Hedge Funds’ Equity Positions

Gjergji Cici1,2,3,4,5,6,7,8,9,10; Alexander Kempf1,2,3,4,5,6,7,8,9,10; Alexander Puetz1,2,3,4,5,6,7,8,9,10

1 Université Claude Bernard Lyon 1 · 2 Karlsruhe Institute of Technology · 3 University of Notre Dame · 4 Goethe University Frankfurt · 5 University of Kaiserslautern · 6 William & Mary · 7 University of Cologne · 8 Vanderbilt University · 9 Financial Research (Hungary) · 10 The University of Texas at Austin

open access

Abstract

We provide evidence on the valuation of equity positions by hedge funds. Reported valuations deviate from standard valuations based on closing prices from the Center for Research in Security Prices for roughly 7% of the positions. These equity valuation deviations are positively related to illiquidity and price volatility of the underlying stocks. They respond to past performance and intensify after an advisor starts reporting to a commercial database. Furthermore, advisors with more valuation deviations show a stronger discontinuity in their reported returns around 0, manage a higher fraction of potentially fraudulent funds, report smoother returns, and exhibit an upward spike in their December reported returns.

DOI
10.1017/s0022109016000351
Volume
51
Issue
3
Pages
1013-1037
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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