Inferring Reporting-Related Biases in Hedge Fund Databases from Hedge Fund Equity Holdings

• Main Authors: AGARWAL, Vikas, FOS, Vyacheslav, JIANG, Wei
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2013
• Subjects: hedge funds; self-reporting; mandatory disclosure; voluntary disclosure; reporting biases; selection biases; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/bnp_research/19; https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1015&context=bnp_research
• Institution: Singapore Management University

This paper formally analyzes the biases related to self-reporting in hedge fund databases by matching the quarterly equity holdings of a complete list of 13F-filing hedge fund companies to the union of five major commercial databases of self-reporting hedge funds between 1980 and 2008. We find that funds initiate self-reporting after positive abnormal returns that do not persist into the reporting period. Termination of self-reporting is followed by both return deterioration and outflows from the funds. The propensity to self-report is consistent with the trade-offs between the benefits (e.g., access to prospective investors) and costs (e.g., partial loss of trading secrecy and flexibility in selective marketing). Finally, returns of self-reporting funds are higher than that of nonreporting funds using characteristic-based benchmarks. However, the difference is not significant using alternative choices of performance measures.