Predicting fraud by investment managers

Stephen Dimmock and William Gerken

Journal of Financial Economics, 2012, vol. 105, issue 1, 153-173

Abstract: We test the predictability of investment fraud using a panel of mandatory disclosures filed with the SEC. We find that disclosures related to past regulatory and legal violations, conflicts of interest, and monitoring have significant power to predict fraud. Avoiding the 5% of firms with the highest ex ante predicted fraud risk would allow an investor to avoid 29% of fraud cases and over 40% of the total dollar losses from fraud. We find no evidence that investors receive compensation for fraud risk through superior performance or lower fees. We examine the barriers to implementing fraud prediction models and suggest changes to the SEC's data access policies that could benefit investors.

Keywords: Fraud; Investment fraud; Operational risk; SEC; Disclosure; Form ADV (search for similar items in EconPapers)
JEL-codes: G2 G20 G28 K2 K22 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

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Related works:
Working Paper: Predicting Fraud by Investment Managers (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:105:y:2012:i:1:p:153-173

DOI: 10.1016/j.jfineco.2012.01.002

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