Inferring reporting biases in hedge fund databases from hedge fund equity holdings

This paper is a first study to formally analyze the biases related to self-reporting in the hedge funds 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. Conditional on self-reporting, we find significant evidence of both a timing bias and a delisting bias: Funds initiate self-reporting after positive abnormal returns which do not persist into the reporting period; while termination of self-reporting is followed by both return deterioration and fund outflows. Unconditionally, 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, self-reporting and non-reporting funds do not differ significantly in return performance, reflecting the offsetting factors motivating self-reporting.