Andrew J. Patton
Duke University - Department of Economics; University of Oxford - Oxford-Man Institute of Quantitative Finance

Tarun Ramadorai
University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance; Centre for Economic Policy Research (CEPR)

Michael Streatfield
University of Oxford - Said Business School; Oxford-Man Institute of Quantitative Finance

Abstract

We analyze the reliability of voluntary disclosures of financial information, focusing on widely-employed hedge fund performance reports to publicly available databases. In snapshots of these databases captured at different points in time, we detect that historical returns are routinely revised. These revisions are not random or mere corrections of earlier mistakes; they are partly forecastable by fund characteristics. Moreover, funds that revise their performance histories significantly and predictably under-perform those that have never revised, suggesting that unreliable disclosures constitute a valuable source of information for current and potential investors. These results speak to current debates about mandatory disclosures by ?financial institutions to market regulators.