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Change You Can Believe In? Hedge Fund Data Revisions

Andrew J. Patton, Duke University, North Carolina USA

22nd Feb 2013  11:30 am - 12:30 pm Room 214/215 Economics and Business Building

We analyze the reliability of  voluntary disclosures of financial information, focusing on widely-employed  publicly available hedge fund databases. Tracking changes to statements of  historical performance recorded at different points in time between 2007 and  2011, we find that historical returns are routinely revised. These revisions  are not merely random or corrections of earlier mistakes; they are partly  forecast-able by fund characteristics. Moreover, funds that revise their  performance histories significantly and predictably underperform those that  have never revised, sugges-ting that unreliable disclosures constitute a  valuable source of information for current and potential investors. These  results speak to current debates about mandatory disclosures by financial  institutions to market regulators.