TY - JOUR
T1 - Strategic Delays and Clustering in Hedge Fund Reported Returns
AU - Aragon, George
AU - Nanda, Vikram
PY - 2017/1/25
Y1 - 2017/1/25
N2 - 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.
AB - 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.
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U2 - 10.1017/S0022109016000715
DO - 10.1017/S0022109016000715
M3 - Article
AN - SCOPUS:85010840147
SN - 0022-1090
SP - 1
EP - 35
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
ER -