Return Smoothing, Liquidity Costs, and Investor Flows: Evidence from a Separate Account Platform
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Farnsworth_Paper2_SmoothingLiquidityAndHedgeFundSeparateAccounts.pdf
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271.96 KB
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Adobe PDF
Checksum (MD5)
19a8caabfc48ee0f8a98dd6add0b944a
Author(s)
Cao, Charles
Farnsworth, Grant
Liang, Bing
Lo, Andrew W
Date Issued
April 2016
Journal
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Citation
Cao, Charles et al. “Return Smoothing, Liquidity Costs, and Investor Flows: Evidence from a Separate Account Platform.” Management Science 63, 7 (July 2017): 2233–2250. © 2016 INFORMS
Version
Original manuscript
Abstract
We use a new hedge fund data set from a separate account platform to examine (1) how much of hedge fund return smoothing is due to main fund-specific factors, such as managerial reporting discretion and (2) the costs of removing hedge fund share restrictions. These accounts trade pari passu with matching hedge funds but feature thirdparty reporting and permissive share restrictions. We use these properties to estimate that 33% of reported smoothing is due to managerial reporting methods. The platform's fund-level liquidity is associated with a 1.7% performance reduction on an annual basis. Investor flows chase monthly past performance on the platform but not in the associated funds.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1287/MNSC.2015.2401
