Unobserved performance of hedge funds

Vikas Agarwal, Stefan Ruenzi and Florian Weigert

No 20-07, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

Abstract: We investigate hedge fund firms' unobserved performance (UP), measured as the riskadjusted return difference between a fund firm's reported return and hypothetical portfolio return derived from its disclosed long equity holdings. Fund firms with high UP outperform those with low UP by 7.2% p.a. after accounting for typical hedge fund risk factors. In a horse-race, UP better forecasts fund performance than other predictors. We find that UP is positively associated with a fund firm's intraquarter trading in equity positions, derivatives usage, short selling, and confidential holdings. UP exhibits significant persistence but investors do not yet use it for manager selection.

Keywords: Hedge fund skill; Confidential Holdings; Derivative Usage; Short Selling; Unobserved Performance (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Unobserved Performance of Hedge Funds (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:2007

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