Date of Award

5-2014

Document Type

Honors Thesis

Degree Name

Bachelor of Arts

Department

Finance

Abstract

This paper seeks to introduce an empirical finance analysis of the relationship between misreporting behavior in hedge funds at the return level and registration as an investment adviser with the SEC, a law that has been enacted, overturned and re-enacted in the last decade. We hypothesize that hedge funds that are not registered with the SEC will be more likely to misreport returns so that a fund will seem as if it is generating positive returns more often than not. We test our hypothesis on the return level by conducting several statistical tests and regression models on hedge fund monthly returns that fall within a certain monthly reported return bin width. We do not find compelling evidence to support our hypothesis that funds not registered with the SEC will be more likely to misreport returns, although we do find links between certain hedge fund characteristics and misreporting behavior that is supported by the existing literature. We check the robustness of our study according to a number of parameters, including, bin widths of misreporting returns, as well as specifications controlling for fund size, hedge fund style, incentives, backfill bias, survivorship bias and other robustness checks.

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