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Uncovering hedge fund skill from the portfolio holdings they hide

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Author Info

  • Agarwal, Vikas
  • Jiang, Wei
  • Tang, Yuehua
  • Yang, Baozhong

Abstract

This paper studies the 'confidential holdings' of institutional investors, especially hedge funds, where the quarter-end equity holdings are disclosed with a significant delay through amendments to the Form 13F. Our evidence supports hiding private information as the dominant motive for hedge funds to seek confidentiality. Hedge funds managing large risky portfolios with less conventional investment strategies seek confidentiality more frequently. Stocks included in the confidential holdings of hedge funds are disproportionately associated with information-sensitive events such as mergers and acquisitions, and share characteristics indicating greater information asymmetry. Moreover, confidential holdings of hedge funds exhibit superior performance up to the typical confidential period of twelve months, suggesting valuable private information. Overall, our study presents new evidence on the performance of hedge funds, provides reference on the potential limitations of the standard 13F holdings databases which usually exclude the confidential holdings, and contributes to the policy debate regarding ownership disclosure. --

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Bibliographic Info

Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 10-09.

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Date of creation: 2010
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Handle: RePEc:zbw:cfrwps:1009

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Keywords: Confidential treatment; ownership disclosure; 13F holdings; hedge funds;

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References

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  1. Xin Chang & Sudipto Dasgupta & Gilles Hilary, 2006. "Analyst Coverage and Financing Decisions," Journal of Finance, American Finance Association, American Finance Association, vol. 61(6), pages 3009-3048, December.
  2. Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2004. "On the Industry Concentration of Actively Managed Equity Mutual Funds," NBER Working Papers 10770, National Bureau of Economic Research, Inc.
  3. Guillermo Llorente & Roni Michaely & Gideon Saar & Jiang Wang, 2001. "Dynamic Volume-Return Relation of Individual Stocks," NBER Working Papers 8312, National Bureau of Economic Research, Inc.
  4. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, American Finance Association, vol. 52(1), pages 57-82, March.
  5. Agarwal, Vikas & Fos, Vyacheslav & Jiang, Wei, 2010. "Inferring reporting biases in hedge fund databases from hedge fund equity holdings," CFR Working Papers 10-08, University of Cologne, Centre for Financial Research (CFR).
  6. Frank, Mary Margaret & Poterba, James M & Shackelford, Douglas A & Shoven, John B, 2004. "Copycat Funds: Information Disclosure Regulation and the Returns to Active Management in the Mutual Fund Industry," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 47(2), pages 515-41, October.
  7. Markus K. Brunnermeier & Stefan Nagel, 2004. "Hedge Funds and the Technology Bubble," Journal of Finance, American Finance Association, American Finance Association, vol. 59(5), pages 2013-2040, October.
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Cited by:
  1. Agarwal, Vikas & Gay, Gerald D. & Ling, Leng, 2011. "Window dressing in mutual funds," CFR Working Papers 11-07, University of Cologne, Centre for Financial Research (CFR).
  2. Glode, Vincent & Green, Richard C., 2011. "Information spillovers and performance persistence for hedge funds," Journal of Financial Economics, Elsevier, Elsevier, vol. 101(1), pages 1-17, July.
  3. Agarwal, Vikas & Fos, Vyacheslav & Jiang, Wei, 2010. "Inferring reporting biases in hedge fund databases from hedge fund equity holdings," CFR Working Papers 10-08, University of Cologne, Centre for Financial Research (CFR).

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