Hidden Risk

Daniel Barth, Phillip J. Monin, Emil N. Siriwardane () and Adi Sunderam
Additional contact information
Phillip J. Monin: https://www.federalreserve.gov/econres/phillip-monin.htm
Emil N. Siriwardane: https://www.emilsiriwardane.com/
Adi Sunderam: https://www.hbs.edu/faculty/Pages/profile.aspx?facId=333538

No 2024-098, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Since 2013, large U.S. hedge fund advisers have been required to report risk exposures in their regulatory filings. Using these data, we first establish that managers’ perceptions of risk contain useful information that is not embedded in fund returns. Investor flows do not respond to this information when managers perceive higher risk than what their past returns would indicate, suggesting managers strategically communicate their risk assessments with investors. During market downturns, investors withdraw capital from funds whose managers perceive higher risk, suggesting they find the performance of these funds in adverse market conditions surprising. These funds are identifiable ex-ante with information that is available to investors.

Keywords: Delegated asset management; Hedge funds; Institutional investors; Investor behavior; Investor flows; Principal agent theory; Risk (search for similar items in EconPapers)
JEL-codes: D82 G11 G14 G23 (search for similar items in EconPapers)
Pages: 60 p.
Date: 2024-12-20
New Economics Papers: this item is included in nep-fmk and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2024-98

DOI: 10.17016/FEDS.2024.098

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