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Uncovering Hedge Fund Skill from the Portfolio Holdings They Hide






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    • Agarwal is with the J. Mack Robinson College of Business at Georgia State University and the Center for Financial Research at University of Cologne, Jiang is with the Graduate School of Business at Columbia University, Tang is with the J. Mack Robinson College of Business at Georgia State University, and Yang is with the J. Mack Robinson College of Business at Georgia State University. The paper has benefited from comments and suggestions from Cindy Alexander, Gurdip Bakshi, Sugato Bhattacharyya, Nicole Boyson, Jay Cai, Mark Chen, Conrad Ciccotello, Evan Dudley, Meyer “Mike” Eisenberg, Merritt Fox, Gerald Gay, Joseph Gerakos, Michael Gombola, Jeff Gordon, Laurie Hodrick, Aneel Keswani, Lixin Huang, Narasimhan Jegadeesh, Danling Jiang, Woodrow Johnson, Jayant Kale, Andrew Karolyi, Omesh Kini, Pedro Matos, Stewart Mayhew, David Musto, Felix Oberholzer-Gee, Jayendu Patel, Sugata Ray, Chip Ryan, David Stolin, Melvin Teo, Bernard Yeung, an anonymous referee, the Associate Editor, the Editor (Campbell Harvey), and seminar and conference participants at the 2012 AFA, 2009 All-Georgia Finance Conference, Columbia Business School, Columbia Law School, Conference on Empirical Legal Studies at Yale Law School, 2009 Conference on Financial Economics and Accounting at Rutgers Business School, Chicago Quantitative Alliance 2010 Annual Fall Conference, 2011 Conference on Financial Regulation at the University of Notre Dame, 2010 Financial Management Association Annual Meeting, Florida State University, Georgetown University, Georgia State University, National University of Singapore's Fourth International Conference on Finance, 2010 NBER Law and Economics Program Spring Meeting, Northwestern Law School, Ohio State University, SAC Capital Advisors, Second Oxford-Man Institute Hedge Fund Conference, Singapore Management University, University of Buffalo, University of Florida, 2011 Vanderbilt Hedge Fund Conference, and Virginia Tech. The authors gratefully acknowledge the financial support of the Q Group and the award from the Chicago Quantitative Alliance 2010 Annual Academic Competition. Yuehua Tang acknowledges the Max Burns Fellowship from Georgia State University. The authors thank George Connaughton, Vyacheslav Fos, Bharat Kesavan, Linlin Ma, and Rong Shao for excellent research assistance.


This paper studies the “confidential holdings” of institutional investors, especially hedge funds, where the quarter-end equity holdings are disclosed with a delay through amendments to Form 13F and are usually excluded from the standard databases. Funds managing large risky portfolios with nonconventional strategies seek confidentiality more frequently. Stocks in these holdings are disproportionately associated with information-sensitive events or share characteristics indicating greater information asymmetry. Confidential holdings exhibit superior performance up to 12 months, and tend to take longer to build. Together the evidence supports private information and the associated price impact as the dominant motives for confidentiality.