This morning a paper from researchers Andrew J. Patton, Tarun Ramadorai, and Michael Streat…eld found it’s way to my desk. The paper takes over 14,000 hedge funds and analyses their results over the years. Their findings are pretty interesting.

Tracking changes to statements of historical performance recorded at different points in time between 2007 and 2011, we …nd that historical returns are routinely revised. These revisions are not merely random or corrections of earlier mistakes; they are partly forecastable by fund characteristics. Funds that revise their performance histories signi…cantly and predictably underperform those that have never revised, suggesting that unreliable disclosures constitute a valuable source of information for current and potential investors.

Based on the research they find a tidbit that both investors and managers could find very useful in both determining which Hedge Funds to invest in as well as their own reporting practices:

We find that on average, revising funds significantly underperform non-revising funds, and there is a far greater risk of experiencing a large negative return when investing in a revising fund.

Which brings them to this conclusion:

Our analysis suggests that mandatory, audited disclosures by hedge funds, such as those proposed by the SEC earlier this year, could be bene…cial to investors and not just regulators.

There is a lot more information in the paper and it’s certainly worth a read.