Suspicious Patterns in Hedge Fund Returns and the Risk of Fraud

Nicolas P. B. Bollen; Veronika Krepely Pool

doi:10.1093/rfs/hhs085

← Search

Suspicious Patterns in Hedge Fund Returns and the Risk of Fraud

Nicolas P. B. Bollen¹; Veronika Krepely Pool²

¹ Vanderbilt University · ² Indiana University

Review of Financial Studies 2012

Recent cases of hedge fund fraud have caused large losses for investors and have fueled the debate regarding the ability of regulators to oversee the industry. This article proposes a set of performance flags, based on suspicious patterns in returns, as indicators of a heightened risk of fraud. We collect a sample of hedge funds charged with legal or regulatory violations and find that funds charged with misappropriation, overvaluation, misrepresentation, or Ponzi schemes trigger the performance flags at a higher frequency than other funds.

DOI: 10.1093/rfs/hhs085
Volume: 25 (9)
Pages: 2673-2702
Language: en
Export: BibTeX
Sources: openalex crossref