Authors / Editors
Agarwal V; Daniel N; and Naik N
We find that hedge fund returns during December are significantly higher than those during the rest of the year even after controlling for funds’ risk exposures and factor risk premiums in December. More importantly, we find that this December spike is higher for funds with greater incentives and greater opportunities to inflate returns. These results suggest that hedge funds manage their returns upwards in an opportunistic fashion in order to earn higher fees. Finally, we provide evidence that funds inflate December returns by under-reporting returns earlier in the year and/or by borrowing from January returns in the following year.
Publication Research Centre
Hedge Fund Centre
HF - 028
BNP Paribas Hedge Fund Centre Working Paper Series