Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/224486
Authors: 
Agarwal, Vikas
Ruenzi, Stefan
Weigert, Florian
Year of Publication: 
2020
Series/Report no.: 
CFR Working Paper 20-07
Abstract: 
We investigate hedge fund firms' unobserved performance (UP), measured as the riskadjusted return difference between a fund firm's reported return and hypothetical portfolio return derived from its disclosed long equity holdings. Fund firms with high UP outperform those with low UP by 7.2% p.a. after accounting for typical hedge fund risk factors. In a horse-race, UP better forecasts fund performance than other predictors. We find that UP is positively associated with a fund firm's intraquarter trading in equity positions, derivatives usage, short selling, and confidential holdings. UP exhibits significant persistence but investors do not yet use it for manager selection.
Subjects: 
Hedge fund skill
Confidential Holdings
Derivative Usage
Short Selling
Unobserved Performance
JEL: 
G11
G23
Document Type: 
Working Paper

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