Regulatory Oversight and Return Misreporting by Hedge Funds

We use Securities and Exchange Commission (SEC) rule changes to show that regulatory oversight reduces return misreporting by hedge funds. Specifically, we use a 2004 rule change that expanded SEC oversight of hedge funds and the 2006 revocation of this rule. Differences-in-differences tests show th...

Full description

Saved in:
Bibliographic Details
Published in:Review of Finance 2016-03, Vol.20 (2), p.795-821
Main Authors: Dimmock, Stephen G., Gerken, William C.
Format: Article
Language:English
Subjects:
Hedge funds
Misrepresentation
Rates of return
Regulatory reform
SEC regulations
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We use Securities and Exchange Commission (SEC) rule changes to show that regulatory oversight reduces return misreporting by hedge funds. Specifically, we use a 2004 rule change that expanded SEC oversight of hedge funds and the 2006 revocation of this rule. Differences-in-differences tests show that, following the rule change, misreporting by newly regulated funds decreased. After revocation, funds that exited the regulatory system increased misreporting relative to funds that remained registered. Placebo tests show no change in misreporting by foreign funds exempt from the rule change. We show that regulatory oversight increased the level of flows and decreased the sensitivity of flows to underperformance.
ISSN:1572-3097
1875-824X
DOI:10.1093/rof/rfv025