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.