Unobserved performance of hedge funds

Agarwal, Vikas ; Ruenzi, Stefan ; Weigert, Florian

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Document Type: Working paper
Year of publication: 2023
The title of a journal, publication series: SSRN Working Paper Series
Place of publication: Amsterdam
Publishing house: Elsevier
Edition: This version: February 2023
Publication language: English
Institution: Business School > Internat. Finanzierung (Ruenzi 2009-)
Subject: 330 Economics
Keywords (English): hedge fund skill , confidential holdings , derivative usage , short selling , unobserved performance
Abstract: We investigate hedge fund firms’ unobserved performance (UP), measured as the risk-adjusted return difference between a firm’s reported gross return and portfolio return inferred from its disclosed long-equity holdings. Firms with high UP outperform those with low UP by 6.36% p.a. after accounting for typical hedge fund risk factors. UP better forecasts fund performance than other predictors. We find that UP is negatively associated with a firm’s trading costs and positively associated with intraquarter trading in equity positions, derivatives usage, short selling, and confidential holdings. UP exhibits significant persistence but investors do not seem to use it for manager selection.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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ORCID: Agarwal, Vikas ; Ruenzi, Stefan ORCID: 0000-0002-6492-1701 ; Weigert, Florian

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