Inferring Reporting Biases in Hedge Fund Databases from Hedge Fund Equity Holdings

This paper is a first study to formally analyze the biases related to self-reporting in the hedgefunds databases by matching the quarterly equity holdings of a complete list of 13F-filing hedge fundcompanies to the union of five major commercial databases of self-reporting hedge funds between 1980and 2008. Conditional on self-reporting, we find significant evidence of both a timing bias and a delistingbias: Funds initiate self-reporting after positive abnormal returns which do not persist into the reportingperiod; while termination of self-reporting is followed by both return deterioration and fund outflows.Unconditionally, the propensity to self-report is consistent with the trade-offs between the benefits (e.g.,access to prospective investors) and costs (e.g., partial loss of trading secrecy and flexibility in selectivemarketing). Finally, self-reporting and non-reporting funds do not differ significantly in returnperformance, reflecting the offsetting factors motivating self-reporting.