Caught in the act: How hedge funds manipulate their equity positions
AbstractUsing 13F position valuations, we show that hedge fund advisors intentionally mismark their stock positions. We document manipulation even after eliminating issues inherent in the pricing of illiquid securities. Hedge fund advisors mark their positions up (down) following poor (good) performance of their equity holdings. Mismarking is more pronounced for advisors that are audited less frequently; are domiciled in offshore locations; self-report to a commercial database; and report more frequently to investors. Furthermore, equity mismarking is related to some of the reported return patterns documented in previous studies, such as a discontinuity in the distribution of returns around zero and smoothed returns. --
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Bibliographic InfoPaper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 10-15.
Date of creation: 2010
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- William Fung & David A. Hsieh & Narayan Y. Naik & Tarun Ramadorai, 2008.
"Hedge Funds: Performance, Risk, and Capital Formation,"
Journal of Finance,
American Finance Association, vol. 63(4), pages 1777-1803, 08.
- Fung, William & Hsieh, David A & Naik, Narayan & Ramadorai, Tarun, 2006. "Hedge Funds: Performance, Risk and Capital Formation," CEPR Discussion Papers 5565, C.E.P.R. Discussion Papers.
- Gavin Cassar & Joseph Gerakos, 2011. "Hedge Funds: Pricing Controls and the Smoothing of Self-reported Returns," Review of Financial Studies, Society for Financial Studies, vol. 24(5), pages 1698-1734.
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