Several papers use a fractional specification (net inflow/ assets under management) to infer a convex relation between flow and past performance. However, heterogeneous linear response functions combined with the pooled analysis commonly used in these studies can yield false convexity estimates....

This paper studies operational risk in the hedge fund industry using due diligence reports. Many funds suffer from operational problems, including limited disclosure of legal and regulatory issues. We use direct evidence of inadequate or failed internal processes to derive a canonical...