2 6 - 2 7 J A N U A R Y, 2 0 1 2 - PA R I S

4 TH A N N U A L H E D G E F U N D RESEARCH CONFERENCE
T H E L AT E S T I N A C A D E M I C H E D G E F U N D R E S E A R C H
N Y S E E U R O N E X T, 3 9 R U E C A M B O N , 7 5 0 0 1 PA R I S
INFORMATION ASYMMETRY AND HEDGE FUND DISCLOSURE: DO HEDGE FUND MANAGERS AND INVESTORS HAVE COMPATIBLE INTERESTS? Potential conflicts of interest and information asymmetry between managers and their clients Debates over the optimal hedge fund disclosure to investors and market regulators Impact of portfolio disclosure on hedge fund performance, fees and flows HEDGE FUND RISK PROFILE: THE LATEST DEVELOPMENTS ON RISK-REWARD MEASUREMENT New stylized facts about hedge fund returns Conditional higher-moment asset-pricing model Risk profile of the aggregate hedge fund universe DEMYSTIFYING SYSTEMIC RISK AND MARKET CONTAGION: THE REAL EFFECTS OF MARKET PARTICIPANTS AND FINANCIAL INSTRUMENTS New measures of the contribution of financial entities to systemic risk Feedback effects due to distressed selling and short selling THE NEW DEAL OF HIGH FREQUENCY TRADING: INCENTIVES VS EMBEDDED RISKS Exchanges incentives to invest in faster trading technologies Investors trading decisions New performance metrics for algorithmic traders

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Welcome to the 4th Annual Hedge Fund Research Conference, which presents the latest research papers about Hedge Funds, from the most renowned academics. With close to a hundred submissions from 50 universities in 15 countries, the 19 unpublished papers which will be presented during the conference were selected following a thorough screening process by a committee of internationally respected research professors. 3 years since inception, this event has become a reference in the field of Risk Management and Alternative Investments research, now attracting the most reputable academics working on cutting-edge topics. Over the last 3 years, the Annual Hedge Fund Research Conference has thus been a platform for international visibility. Indeed, out of a total of 43 research papers presented across the last 3 events, 13 of them have already been published in the most renowned academic publications.

ORGANIZING COMMITTEE SERGE DAROLLES, LYXOR RESEARCH AND CREST Serge Darolles joined Lyxor Research in 2000 and develops mathematical models for various investment strategies. Prior to joining Lyxor Research, Mr. Darolles held consultant roles at Caisse des Dpts & Consignations, Banque Paribas and the French Atomic Energy Agency. Mr. Darolles specializes in mathematical finance and modelling and has written numerous articles which have been published in academic journals. He is an Adjunct Professor of Mathematics at Paris Dauphine University where he teaches Financial Econometrics. Mr. Darolles holds a Ph.D. in Applied Mathematics from the University of Toulouse and a postgraduate degree in Economics and Statistics at Ecole Nationale de la Statistique et de lAdministration Economique, Paris. REN GARCIA, EDHEC BUSINESS SCHOOL After his Ph.D. in Economics from Princeton University in 1992, Ren Garcia joined the Universit de Montral, where he held the Hydro-Qubec Chair in Risk Management and was a Research Fellow of the Bank of Canada. He was also the scientific director of the Centre for Interuniversity Research and Analysis on Organizations (CIRANO). He joined EDHEC Business School in Nice (France) in 2007 where he is today Chair Professor of Finance. He is currently editor of the Journal of Financial Econometrics, published by Oxford University Press. His most recent research focuses on the evaluation of asset pricing models accounting for higher moments, long-run asset pricing models, the use of cross-sectional variance of equity returns to measure idiosyncratic volatility, the analysis of hedge fund returns, and the funding liquidity premium in bonds. CHRISTIAN GOURIROUX, UNIVERSITY OF TORONTO AND CREST Christian Gouriroux is professor of Economics at the University of Toronto, director of the Finance-Insurance laboratory at CREST (Center for Research in Economics and Statistics in Paris), and head of the AXA chair on Large Risks in Insurance. His current research interests are in Financial Econometrics, especially in credit risk, term structure of interest rates, longevity, hedge funds and regulation. Christian has received the Koopmans price in Econometric Theory and the silver medal of CNRS (the French National Research Found) for his research in Economics ; he has been a scientific adviser for credit scoring at BnpParibas during 20 years, and consultant for Basel II at DEXIA and CIBC (Canada). He his a member of the scientific committees of the EURONEXT market indices, of the Autorit des Marchs Financiers (the French equivalent of the SEC), of the Autorit de Controle Prudentiel ( the Authority for the new prudential regulation), and is in the Board of the Bond Standard Committee (CNO). He has published widely, about 200 articles, in Economics, Econometrics and Finance academic journals and he is the coauthor of several books.

SCIENTIFIC COMMITTEE Serge Darolles (Lyxor Research and CREST), Ren Garcia (Edhec Business School), Christian Gouriroux (University of Toronto and CREST), Andrew Patton (Duke University), Tarun Ramadorai (University of Oxford), Ronnie Sadka (Boston College).

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D AY O N E ADVERSE HEDGE FUND ACTIVITIES, RISK PROFILE AND HIGH FREQUENCY TRADING

The first day will start and finish with the two sponsors sessions. The Lyxor session treats the information asymmetry issue. A body of the current hedge fund literature studies the potential conflicts of interest between fund managers and investors. Some protections introduced to accommodate the common interest of investors can induce information asymmetry between managers and their clients. Ronnie Sadka studies in detail the share restriction case. This information asymmetry issue is also at the center of George Aragons paper. Fund managers that delay their voluntary disclosures of fund performance to public database introduce information asymmetries between managers and investors. For the NYSE session, High Frequency Trading will be the sujet du jour. Two papers are presented during this session. In Competing for Speed, Emiliano Pagnotta studies a framework that both captures exchanges incentives to invest in faster trading technologies and investors trading decisions. Dale Rosenthal proposes a new performance for algorithmic traders. Metrics decompose trading performance into trading skill, patience, and order scheduling skill versus luck.

The two other sessions of the days will be on systemic risk and hedge fund risk profile. The systemic risk session discusses the measures of the contribution of financial entities to systemic risk around three recent research papers. Giulio Girardi proposes a new definition of the Value-at-Risk (VaR) of the financial system conditional on an institution being in financial distress. Christian Brownlees introduces an empirical methodology to measure systemic risk of the financial institution. And finally Christian Gouriroux discusses the contributions of financial entities to a global reserve from a regulatory perspective. Concerning hedge fund risk profile, it is now well recognized that risk premia embedded in Hedge Fund returns are not linear. Marie Lambert proposes a conditional higher-moment asset-pricing model with location, trading and higher-moment factors to capture the dynamic hedge fund styles. Mike Cliff presents a model by which each funds alpha is drawn from one of several distributions based on its managers skill level. Jakub Jurek documents that the risk profile of the aggregate hedge fund universe can be accurately matched by a simple index put option writing strategy.

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D AY T W O HEDGE FUND DISCLOSURE, PERFORMANCE AND F E E S , M A R K E T C O N TA G I O N A N D E T F S

The second day will start with a session on market contagion and ETFs. The importance of hedge fund trading for understanding market contagion phenomena is evident. Lakshithe Wagalath illustrates how feedback effects due to distressed selling and short selling lead to endogenous correlations between asset classes. Gaelle Le Fol analyzes the illiquidity of emerging markets and the consequences in terms of systemic risk. And even liquid instruments such ETFs are today concerned by these discussion. Rabih Moussawi presents evidence consistent with the idea that ETFs serve as conduits for transmission of non-fundamental shocks to the underlying assets. The Hedge Fund disclosure session centers around the policy debate over what constitutes optimal hedge fund disclosure to investors and market regulators. Zen Shi investigates the impact of portfolio disclosure on hedge fund performance, fees and flows. His study suggests that the cost of portfolio disclosure is economically large for investors. Tarun Ramadorai studies the reliability of voluntary disclosures. He finds that funds that revise their performance histories significantly and predictably underperform those that have never revised. This suggests that unreliable disclosures constitute a valuable source of information for current and potential investors.

The two last sessions will be on hedge fund survival, performance and fees. First, a good understanding of hedge fund survival and failure is essential for any hedge fund investor. The first paper in this section studies the relation between liquidity and failure. Hedge fund liquidity is often modeled using proxy variables such as lockup, redemption notice and redemption frequency. Guillaume Simon shows that the lockup variable is intrinsically endogenous and explains this way the rebound effect observed for funds complying into the lockup settlement. Emanuel Kastl in his research gives attention to family membership as driver of hedge fund survival. His findings indicate that family membership and increasing family size significantly enhance hedge fund survival. Concerning hedge fund performance and fees, Juha Joenvra presents new stylized facts about hedge funds and highlights the importance of hedge fund database selection. He documents economically important performance persistence that seems to be mainly driven by small hedge funds. Moreover, Hedge funds with greater managerial incentives outperform while hedge funds with strict share restrictions are not associated with higher risk-adjusted returns. Ivan Guidotti proposes a rational model of the behavior of hedge fund managers and investors that explains the variations of fees charged by hedge funds.

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D AY O N E ADVERSE HEDGE FUND ACTIVITIES, RISK PROFILE AND HIGH FREQUENCY TRADING

8.30-9.15 R E G I S T R AT I O N

9.15-10.45 A D V E R S E H E D G E F U N D A C T I V I T Y / LY X O R S E S S I O N

Chair: C. Gourieroux (University of Toronto) Introduction by L. Seyer (Chief Executive Officer, Lxyor AM) G. Ozik (Edhec Business School), R. Sadka (Boston College) Skin in the Game versus Skimming the Games: Governance, Share Restrictions and Insiders Flow Discussant: J. Gaspar (ESSEC)

Ozik and Sadka Skin in the Game versus Skimming the Games: Governance, Share Restrictions and Insiders Flow
Share restrictions in the hedge-fund industry are often introduced as means of protecting the common interest of investors. Yet, this paper advances that such restrictions induce information asymmetry between managers and their clients about future fund flows. Fund flows, in turn, predict future fund returns for share-restricted funds, especially among funds with low levels of governance and funds managing insiders' wealth, providing managers incentive to trade in advance of their clients. Some direct evidences for such managerial action are presented, as well as additional consistent evidences from the flows of funds in the same family. The evidence suggests that private information about the fund, not only about the fundamental value of its assets, may constitute material information. Such private information engenders potential conflict of interest between fund managers and investors, with implications for proper fund governance and disclosure policy concerning managerial actions.

G. Aragon (Arizona State University), V. Nanda (Georgia Tech University) Strategic Delays and Clustering in Hedge Fund Reported Returns Discussant: F. Franzoni (University of Lugano)

Aragon and Nanda Strategic Delays and Clustering in Hedge Fund Reported Returns
We rely on a novel dataset to study the timing of hedge fund managers voluntary disclosures of fund performance to a well-known database (TASS). We find that monthly performance results are delayed by three weeks, on average, and that delays are longer when performance is worse, public market news is better, and fund investors are restricted from redeeming their shares. In addition, managers that delay reporting often disclose the returns for two or more months simultaneously in clusters, in which the returns in the initial months tend to be poor, but are followed by a strong performance reversal in subsequent months. Lastly, we find that investor capital flows into funds are significantly lower after managers fail to make timely reports on monthly performance. The results suggest that strategic delay plays an important role in the disclosure of hedge fund returns.

10.45-11.15 MORNING BREAK

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11.15-13.15 SYSTEMIC RISK

Chair: L. Clerc (Banque de France) G. Girardi (Suffolk University), A. Tolga Ergn (Suffolk University) Systemic Risk Measurement: Multivariate GARCH Estimation of CoVaR Discussant: C. Hurlin (Orleans University)

Girardi and Tolga Ergn Systemic Risk Measurement: Multivariate GARCH Estimation of CoVaR
We modify Adrian and Brunnermeiers (2010) CoVaR, the Value-at-Risk (VaR) of the financial system conditional on an institution being in financial distress. We change the definition of financial distress from an institution being exactly at its VaR to being at most at its VaR. This change allows us to consider more severe distress events that are farther in the tail; to estimate CoVaR using the full-suite of GARCH models; and to backtest CoVaR. We define the systemic risk contribution of an institution as the change from its CoVaR in its benchmark state, which we take as a one-standard deviation event, to its CoVaR under financial distress. We estimate the systemic risk contributions of four financial industry groups consisting of a large number of institutions for the sample period June 2000 to February 2008. We also investigate the link between institutions contributions to systemic risk and their characteristics such as size, leverage, and equity beta. Finally, using 12 months of data prior to the beginning of June 2007, we compute industry groups pre-crisis systemic risk contributions.

C Brownlees (Universitat Pompeu Fabra), R. Engle (New York University) Volatility, Correlation and Tails for Systemic Risk Measurement Discussant: A. Monfort (CREST)

Brownlees and Engle Volatility, Correlation and Tails for Systemic Risk Measurement
In this paper we propose an empirical methodology to measure systemic risk. Building upon Acharya et al. (2010), we think of the systemic risk of a financial institution as its contribution to the total capital shortfall of the financial system that can be expected in a future crisis. We propose a systemic risk measure (SRISK) that captures the expected capital shortage of a firm given its degree of leverage and Marginal Expected Shortfall (MES). MES is the expected loss an equity investor in a financial firm would experience if the overall market declined substantially. To estimate MES, we introduce a dynamic model for the market and firm returns. The specification is characterized by time varying volatility and correlation, which are modelled with the familiar TARCH and DCC. We do not make specific distributional assumptions on the model innovations and rely on flexible methods for inference that allow for tail dependence. The model is extrapolated to estimate the equity loss of a firm in a future crisis and consequently the capital shortage that would be experienced depending on the initial leverage. The empirical application on a set of top U.S. financial firms finds that the methodology provides useful rankings of systemically risky firms at various stages of the financial crisis. One year and a half before the Lehman bankruptcy, eight companies out of the SRISK top ten turned out to be troubled institutions. Results also highlight the deterioration of the capitalization of the financial system starting from January 2007 and that as of July 2010 the system does not appear fully recovered.

C. Gouriroux (University of Toronto), A. Monfort (CREST) Allocating Systematic and Unsystematic Risks in a Regulatory Perspective Discussant: F. Pegoraro (Banque de France)

Gouriroux and Monfort Allocating Systematic and Unsystematic Risks in a Regulatory Perspective
This paper discusses the contributions of financial entities to a global reserve from a regulatory perspective. We introduce axioms of decentralization, additivity and compatibility with risk ordering, which should be satisfied by the contributions of the entities and we characterize the set of "coherent" contributions compatible with these axioms. Then, we explain how to disentangle the systematic and unsystematic risk components of these contributions. Finally, we discuss the usual relationship between baseline reserve and reglementary required capital, and propose alternative solutions to the question of procyclical required capital.

13.15-14.30 LUNCH BREAK

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D AY O N E ADVERSE HEDGE FUND ACTIVITIES, RISK PROFILE AND HIGH FREQUENCY TRADING

14.30-16.30 HEDGE FUND RISK PROFILE

Chair: R. Sadka (Boston College) G. Hbner (University of Liege), M. Lambert (Maastricht University), N. Papageorgiou (HEC Montreal) Higher-moment Risk Exposures in Hedge Funds Discussant: E. Jurczenko (ESCP Paris)

Hbner, Lambert and Papageorgiou Higher-moment Risk Exposures in Hedge Funds

The paper singles out the key roles of US equity skewness and kurtosis in the determination of the market premia embedded in Hedge Fund returns. We propose a conditional higher-moment asset pricing model with location, trading and highermoment factors in order to describe the dynamics of the Equity Hedge (Market Neutral, Short Selling and Long/Short strategies), Event Driven, Relative Value, and Funds of Hedge Funds styles. The volatility, skewness and kurtosis implied in the US options markets are used by Hedge Fund managers as instruments to anticipate market movements. Managers should adjust their market exposure in response to variations in the implied higher moments. We show that higher-moment premia improve a conditional asset pricing model both in terms of explanatory power (R-squares and Schwarz criterion) and specification errors across all Hedge Fund styles.

Y. Chen (Virginia Tech), M. Cliff (Analysis Group), H. Zhao (Georgia State University) Hedge Funds: The Good, the (Not-so) Bad, and the Ugly Discussant: H. Pirotte (University of Brussels)

Chen, Cliff and Zhao Hedge Funds: The Good, the (Not-so) Bad, and the Ugly
This paper proposes a new methodology to evaluate the prevalence of skilled fund managers. We assume that each funds alpha is drawn from one of several distributions based on its skill level (e.g., good, neutral, or bad). For a sample of funds, the composite distribution of alpha is thus a mixture of the underlying distributions. We use the Expectation-Maximization algorithm to infer the proportion of funds of different skill levels and estimate the conditional probability each fund is of a skill type given estimated alpha. Applying our approach to hedge funds over 19942009, we find that about 50% of funds have positive skill. Funds identified by our approach as superior persistently deliver high out-of-sample alpha over the next three years. While investors chase past performance, inflows do not reduce fund performance in the near future.

J. Jurek (Princeton University), E. Stafford (Harvard Business School) The Cost of Capital for Alternative Investments Discussant: G. Ozik (Edhec Business School)

Jurek and Stafford The Cost of Capital for Alternative Investments

This paper studies the cost of capital for alternative investments. We document that the risk profile of the aggregate hedge fund universe can be accurately matched by a simple index put option writing strategy that offers monthly liquidity and complete transparency over its state-contingent payoffs. The contractual nature of the put options in the benchmark portfolio allows us to evaluate appropriate required rates of return as a function of investor risk preferences and the underlying distribution of market returns. This simple framework produces a number of distinct predictions about the cost of capital for alternatives relative to traditional mean-variance analysis.

16.30-17.00 AFTERNOON BREAK

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17.00-18.30 HIGH FREQUENCY TRADING / NYSE LIFFE SESSION

Chair: G. Le Fol (Paris Dauphine University) Introduction by A. Cordell (Head of Equity Derivatives and OTC Services, NYSE Liffe) E. Pagnotta (New York University), T. Philippon (New York University) Competing on Speed Discussant: A. Menkveld (VU University Amsterdam)

Pagnotta and Philippon Competing on Speed

Two forces have reshaped global securities markets in the last decade: Exchanges operate at much faster speeds and the trading landscape has become more fragmented. In order to analyze the positive and normative implications of these evolutions, we study a framework that captures (i) exchanges incentives to invest in faster trading technologies and (ii) investors trading and participation decisions. Our model predicts that regulation that protects investors prices (e.g. SECs order protection rule) will lead to fragmentation and faster trading speed. On normative side, we find that for a given number of exchanges, faster trading is socially desirable. Similarly, for a given trading speed, competition among exchange increases participation and welfare. However, when speed is endogenous, competition between exchanges is not necessarily desirable. In particular, speed can be inefficiently high. Our model sheds light on important features of the experience of European and U.S. markets since the implementation of Reg. NMS, and provides some guidance for optimal regulations.

D. Rosenthal (University of Illinois at Chicago) Performance Metrics for Algorithmic Traders Discussant: L. Hvozdyk (University of Cambridge)

Rosenthal Performance Metrics for Algorithmic Traders

Portfolio traders may split large (parent) orders into child orders sent on a schedule to reduce price impact. These child orders are often traded in an automated (\algorithmic") manner. This paper introduces performance metrics which help portfolio managers measure various trading skills with low noise. The metrics use parent and child orders and are robust to order splitting. The full set of metrics decomposes trading performance into trading skill, patience, and order scheduling skill versus luck. This decomposition allows managers to assess the performance of separate components of an automated trading process. The metrics also relate to a price impact model with permanent, decaying, and temporary components which allows recovery of model parameters. Some metrics may be used to evaluate external intermediaries, to test for possible front-running, and to reduce the cost of trading.

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D AY T W O HEDGE FUND DISCLOSURE, PERFORMANCE AND F E E S , M A R K E T C O N TA G I O N A N D E T F S

9.00-11.00 M A R K E T C O N TA G I O N A N D E T F S

Chair: TBD R. Cont (Columbia University), L. Wagalath (Paris 6 University) Running for the Exit: Distressed Selling and Endogenous Correlation in Financial Markets Discussant: B. Klaus (Banque de France)

Cont and Wagalath Running for the Exit: Distressed Selling and Endogenous Correlation in Financial Markets
We propose a simple multiperiod model of price impact from trading in a market with multiple assets, which illustrates how feedback effects due to distressed selling and short selling lead to endogenous correlations between asset classes. We show that distressed selling by investors exiting a fund and short selling of the funds positions by traders may have non-negligible impact on the realized correlations between returns of assets held by the fund. These feedback effects may lead to positive realized correlations between fundamentally uncorrelated assets, as well as an increase in correlations across all asset classes and in the funds volatility which is exacerbated in scenarios in which the fund undergoes large losses. By studying the diffusion limit of our discrete time model, we obtain analytical expressions for the realized covariance and show that the realized covariance may be decomposed as the sum of a fundamental covariance and a liquiditydependent excess covariance. Finally, we examine the impact of these feedback effects on the volatility of other funds. Our results provide insight into the nature of spikes in correlation associated with the failure or liquidation of large funds.

S. Darolles (Lyxor Research), J. Dudek (CREST), G. Le Fol (Paris Dauphine University) Liquidity Contagion: a Look at Emerging Markets Discussant: M. Billio (University of Venice)

Darolles, Dudek and Le Fol Liquidity Contagion: a Look at Emerging Markets

Emerging economies have passed an important stress test during the period 2008-2009 and are now the key drivers for global growth of the world economy. The explosive expansion that emerging markets are showing during last years is mainly due to substantial returns that investors made. However, literature exposes that poor liquidity is one of the main reasons for foreign institutional investors not to invest in emerging markets. The main contribution of this paper is to propose to analyze the liquidity of emerging markets and their effects on the contagion from one another in order to prevent illiquid events or systemic risk. Emerging market liquidity measures are the basis for the sovereign debt market, and the deviations of the covered interest parity for the foreign exchange market. One classical way to identify contagion is to observe an increase in correlation between asset returns during a crisis period. However, since crisis periods are typically characterized by an increase in volatility, it is crucial to discriminate between volatility and pure-correlation rises. One way to tackle this problem is to use a state-space model with a time-varying volatility specification and apply it to both returns and liquidity indicators.

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I. Ben David (Ohio State University), F. Franzoni (University of Lugano), R. Moussawi (University of Pennsylvania) ETFs, Arbitrage, and Shock Propagation Discussant: G. Aragon (Arizona State University),

Ben David, Franzoni and Moussawi ETFs, Arbitrage, and Shock Propagation
The number of ETFs and the assets they manage have experienced significant growth over the last decade. These instruments are appealing to investors because they provide a cheap way to access different markets and asset classes. This paper presents evidence consistent with the idea that ETFs serve as conduits for transmission of nonfundamental shocks to the underlying assets. The transmission occurs via the arbitrage activity that keeps their price aligned with the price of the underlying assets. We show that an increase in ETF ownership is associated with a rise in the volatility of the underlying. Furthermore, a deviation of the ETF price from its net asset value is followed on the next day be a movement in the same direction of the price of the underlying asset. Finally, during the Flash Crash of May 2010, ETF mispricing arbitrage contributed to transmit the liquidity shock from the futures market to the equity market.

11.00-11.30 MORNING BREAK

11.30-12.50 HEDGE FUND DISCLOSURE

Chair: R. Garcia (EDHEC Business School) Z. Shi (Georgia State University) The Impact of Portfolio Disclosures on Hedge Fund Performance, Fees, and Flows Discussant: I. Nagy (University of Neuchatel)

Shi The Impact of Portfolio Disclosure on Hedge Fund Performance, Fees, and Flows
This study investigates the impact of portfolio disclosure on hedge fund performance. Using a regression discontinuity design, I investigate the effect of the disclosure requirements that take effect when an investment company's assets exceed $100 million; when that occurs, a fund is required by the SEC to submit form 13F disclosing its portfolio holdings. Consistent with the argument that portfolio disclosure reveals "trade secrets" and also raises front running costs thus harms the funds that disclose, I find that there is a drop in fund performance (about 4% annually) after a fund begins filing form 13F, as well as an increase in return correlations with other hedge funds in the same investment style. The drop in performance cannot be explained by a change in the assets under management or a mean reversion in returns. Consistent with the idea that funds with illiquid holdings tend to employ sequential trading strategies, which increase the likelihood of being taken advantage of by free riders and front runners, the drop in performance is more dramatic for funds that have more illiquid holdings. In addition, I find that the incentive fees paid to fund managers are 1% higher when portfolio disclosure is required, which supports the hypothesis that investors' monitoring of portfolio holdings disciplines adverse risk-taking by fund managers and allows for higher convexity in the optimal compensation structure. Finally, there is a drop in flows into funds that file 13F, which suggests that hedge fund investors negatively value 13F disclosure. Overall, this study suggests that the cost of portfolio disclosure is economically large. It contributes to the policy debate over what constitutes optimal disclosure.

A. Patton (Dike University), T. Ramadorai (University of Oxford), M. Streatfield (University of Oxford) The Reliability of Voluntary Disclosures: Evidence from Hedge Funds Discussant: TBD

Patton, Ramadorai and Streatfield The Reliability of Voluntary Disclosures: Evidence from Hedge Funds
We analyze the reliability of voluntary disclosures of financial information, focusing on widelyemployed publicly available hedge fund databases. Tracking changes to statements of historical performance recorded at different points in time between 2007 and 2011, we find 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 significantly and predictably underperform 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.

12.50-14.15 LUNCH BREAK

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D AY T W O HEDGE FUND DISCLOSURE, PERFORMANCE AND F E E S , M A R K E T C O N TA G I O N A N D E T F S

14.15-15.55 H E D G E F U N D S U R V I VA L

Chair: T. Ramadorai (University of Oxford) G. Simon (Capital Fund Management) Does Lockup Increase Hedge Funds Lifetimes Discussant: Xavier dHaultfoeuille (CREST)

Simon Does Lockup Increase Hedge Funds Lifetimes

Hedge fund liquidity is often modelled using proxy variables such as lockup (impediment on the withdrawal of initial capital), redemption notice and redemption frequency (time of request and time to wait before an investor gets her money back). We show in this paper that (i) the lockup variable is intrinsically endogenous, that (ii) using redemptions variables as instruments allow to estimate a causal effect of the lockup on the survival of the fund (larger than the duration of the lockup itself) and that (iii) this effect is in line with the literature arguing for a rebound effect for funds complying into the lockup settlement.

E. Kastl (Cass Business School) How Does Family Membership Influence Hedge Fund Survival? Discussant: G. Mero (University of Cergy)

Kastl How Does Family Membership Influence Hedge Fund Survival?

The purpose of this paper is to develop an enhanced understanding of hedge fund survival and failure. Although hedge fund survival and some of its causes (e.g. returns, fund size, etc.) have been discussed in extant literature, little attention was given to family membership as driver of hedge fund survival. This investigation is important, since prior research (e.g. Boyson, 2008) indicates that more than half of the funds in the hedge fund industry are part of a fund family. Drawing on a large-scale dataset, I analyze the impact of family membership and family size on hedge fund survival while controlling for survival impacting factors identified by extant literature. The findings, which are consistent across two chosen statistical models, indicate that family membership and increasing family size significantly enhance hedge fund survival. For explanations of this result, I draw on the literature of embeddedness and expand its scope to intraorganizational relationships within a hedge fund family.

15.55-16.10 AFTERNOON BREAK

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16.10-17.50 HEDGE FUND PERFORMANCE AND FEES

Chair: TBD J. Joenvr (University of Oulu), R. Kosowski (Imperial College), P. Tolonen (University of Oulu) Revisiting "Stylized Facts" about Hedge Funds Discussant: A. Siegmann (VU University Amsterdam)

Joenvr, Kosowski and Tolonen Revisiting "Stylized Facts" about Hedge Funds
This paper presents new stylized facts about hedge funds and highlights the importance of hedge fund database selection. We propose a novel, easily replicable, approach for merging all the major hedge fund databases which have not been jointly analyzed to date. To mitigate data biases, we exploit the information contained in hedge fund share classes across databases so as to obtain the longest possible return and AuM timeseries for each individual hedge fund employing a unique investment strategy. Using a comprehensive hedge fund data base, we document economically important performance persistence that seems to be mainly driven by small hedge funds. Hedge funds with greater managerial incentives outperform while hedge funds with strict share restrictions are not associated with higher risk-adjusted returns. When these new stylized facts are compared with those from the individual databases, we find that the conclusions based on the consolidated database are qualitatively different from those based on the individual database. To avoid biases, it is therefore important to use a consolidated data base since the stylized facts inferred from individual databases may differ significantly from the population.

P. Guidotti (University of Neuchatel), I. Nagy (University of Neuchatel) Rational Behavior of Hedge Fund Managers and Investors Discussant: G. Calice (University of Southampton)

Guidotti and Nagy Rational Behavior of Hedge Fund Managers and Investors
Portfolio traders may split large (parent) orders into child orders sent on a schedule to reduce price impact. These child orders are often traded in an automated (\algorithmic") manner. This paper introduces performance metrics which help portfolio managers measure various trading skills with low noise. The metrics use parent and child orders and are robust to order splitting. The full set of metrics decomposes trading performance into trading skill, patience, and order scheduling skill versus luck. This decomposition allows managers to assess the performance of separate components of an automated trading process. The metrics also relate to a price impact model with permanent, decaying, and temporary components which allows recovery of model parameters. Some metrics may be used to evaluate external intermediaries, to test for possible front-running, and to reduce the cost of trading.

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4 TH A N N U A L H E D G E F U N D R E S E A R C H C O N F E R E N C E

2011 CONFERENCE

R E S E A R C H PA P E R S FROM PREVIOUS EVENTS

PAPER PRESENTED BY Adrian

FROM

TITLE

CURRENT STATUS / PUBLICATION Working paper

Federal Reserve Bank of New York Columbia University Toulouse School of Economics University of Oxford

Broker-Dealer Leverage and the Cross-Section of Stock Returns Hedge Fund Leverage Stock Price Manipulation by Hedge Funds

Ang Landier

Journal of Financial Economics, 2011 Working paper

Ramadorai

Capacity Constraints, Investor Information, and Hedge Fund Returns Middlemen in Limit-Order Markets Do Hedge Funds Reduce Idiosyncratic Risk? Media and Investment Management

Journal of Financial Economics, forthcoming Working paper Working paper Working paper

Menkveld Sadka Ozik

VU University Boston College EDHEC Business School Singapore Management University Vanderbilt University

Teo

Hedge Funds and Analyst Conflicts of Interests

Working paper

Bollen

Zero-R2 Hedge Funds and Market Neutrality

Journal of Financial and Quantitative Analysis, forthcoming The Review of Financial Studies, forthcoming Working paper

Nanda

Georgia Tech University

On Tournament Behavior in Hedge Funds: High Water Marks, Fund Liquidation, and the Backfilling Bias Survival of Hedge Funds: Frailty vs Contagion Hedge Funds Tail Risk and Marginal Risk Contribution in Fund of Hedge Funds Unsupervised Risk Factor Clustering: A Construction Framework for Funds of Hedge Funds Can Hedge Funds Time Market Liquidity? Role of Equity Funds in the Financial Crisis Investors Horizons and the Amplification of Market Shocks

Gourieroux Billio

University of Toronto University of Venice

Criton

Lombard Odier

Cao Hau Gianetti

Penn State University University of Geneva Stockholm School of Economics

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4 TH A N N U A L H E D G E F U N D R E S E A R C H C O N F E R E N C E

2010 CONFERENCE

R E S E A R C H PA P E R S FROM PREVIOUS EVENTS

PAPER PRESENTED BY Plantin

FROM

TITLE

CURRENT STATUS / PUBLICATION

Toulouse School of Economics University of Toronto Columbia University

Rewarding Trading Skills Without Inducing Gambling?

Gouriroux Fos

The Effects of Management and Provision Accounts Inferring Reporting Biases in Hedge Fund Databases from Hedge Fund Equity Holdings Measuring Systemic Risk in the Hedge Fund, Finance and Insurance Sectors Speculators, Commodities and Cross-Market

Billio

University of Venice

Byksahin

International Energy Agency London School of Economics Singapore Management University Boston College HEC Montreal

Polk

Connected Stocks

Teo

The Liquidity Risk of Liquid Hedge Funds

Journal of Financial Economics, 2011

Sadka Papageorgiou

Liquidity Risk and the Cross-Section of Hedge-Fund Performance Analysis of a Collateralized Fund Obligation (CFO) Equity Tranche The Option CAPM and The Performance of Hedge Funds The Exchange Rate Effect of Multi-Currency Risk Arbitrage Asset Fire Sales and Purchases and the International Transmission of Funding Shocks, Hedge Fund Stock Trading in the Financial Crisis of 2007-2009 Hedge Fund Predictability Under the Magnifying Glass: Forecasting Individual Fund Returns Using Multiple Predictors On the Dynamics of Hedge Fund Risk Exposures

Journal of Financial Economics, 2010 The European Journal of Finance, forthcoming Review of Derivatives Research, forthcoming Working paper

Garcia

EDHEC Business School University of Geneva

Hau

Ramadorai

University of Oxford

Journal of Finance, forthcoming

Franzoni

University of Lugano

Review of Financial Studies, fothcoming

Kosowski

Imperial College

Patton >>15

Duke University

4 TH A N N U A L H E D G E F U N D R E S E A R C H C O N F E R E N C E

2009 CONFERENCE

R E S E A R C H PA P E R S FROM PREVIOUS EVENTS

PAPER PRESENTED BY Madan

FROM

TITLE

CURRENT STATUS / PUBLICATION International Journal of Theoretical and Applied Finance, 2009 Journal of Empirical Finance, 2009

University of Maryland

Hedge Fund Performance: Sources and Measures

Gouriroux Garcia

University of Toronto EDHEC Business School Lombard Odier Toulouse School of Economics University of Venice Georgia State University

L-Performance with an Application to Hedge Funds Empirical Likelihood Estimators for Stochastic Discount Factors The Dynamics of Hedge Fund Performances Hedge Funds Durations: Endogeneity of Performance and AUM Crises and Hedge Fund Risk Do Higher-Moment Equity Risks Explain Hedge Fund Returns? When there is No Place to Hide: Correlation Risk and the Cross-Section of Hedge Fund Returns When Diversification Increases Risk: Feedback Effects and Endogenous Correlation in Fund Returns Time-Varying Liquidity in Hedge Fund Returns Locked up by a lockup: Valuing liquidity as a real Limits of Limits of Arbitrage: Theory and Evidence

Teiletche Florens

Billio Agarwal

Kosowski

Imperial College

Cont

Columbia University

Patton Bollen Thesmar

Duke University Vanderbilt University HEC Paris

Financial Management, 2010

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4 TH A N N U A L H E D G E F U N D R E S E A R C H C O N F E R E N C E

NYSE LIFFE G L O B A L D E R I V AT I V E S

NYSE Liffe, the global derivatives business of NYSE Euronext

NYSE Liffe operates futures and options markets in both Europe and the U.S. NYSE Liffe offers a broad choice of derivatives including those based on short-term interest rates, single stocks, indices, swaps, government bonds, commodities and currencies all available to trade via LIFFE CONNECT. All listed products benefit from the safety and transparency of a centrally cleared, electronic market. For customers that prefer to trade in the overthe-counter (OTC) market, NYSE Liffe offers Bclear. Bclear is NYSE Liffes OTC service for customers who want to conduct business away from the central market but who still want the benefits of central clearing and processing. Bclear is used extensively by leading investment banks and buy-side firms to process OTC derivatives business, helping them to reduce operational risk and manage counterparty risk. NYSE Liffe Clearing is NYSE Liffes clearing service for its members. It covers all products on NYSE Liffes London market, including trades booked through its Bclear facility.

Fixed Income derivatives

NYSE Liffes fixed income derivatives portfolio offers an extensive range of financial products, including short-term interest rate (STIR) futures and options, swap futures, government bond and FX futures all within a high speed and secure environment via our central market. Our three month Euribor and Short Sterling product suites, amongst the most traded STIR futures and options contracts world-wide, offer enhanced hedging and spread opportunities against the front-end of the Euro and Sterling yield curve, whilst our portfolio of Gilt and Swapnote futures and options contracts provide cost-effective exposure to longer term interest rates and comprehensive coverage further along the yield curve. Trading strategies are also available for interest rate futures and options contracts to allow market participants to take a range of views in one trade and also to better manage their execution risk.

Equity Derivatives
NYSE Liffe offers a wide range of equity derivative products: Futures and options on leading indices including the AEX-index, BEL 20, CAC 40, FTSE 100 and futures on the PSI 20 Stock options on leading European companies Stock futures on an international range of blue-chip companies Options on exchange traded funds We also list 48 Bclear MSCI Index Futures via the Bclear service As well as the OTC service Bclear, NYSE Liffe also offers Cscreen, providing customers a more efficient way of discovering prices for equity derivatives. As a global pre-trade price discovery platform, over 4,000 underlyings are available on Cscreen from a wide variety of global markets, including Asia, Australia, Eastern and Western Europe, India, North and South America, Russia and South Africa.

Commodity Derivatives
NYSE Liffes commodity futures contracts have long been relied upon as global and European benchmarks for Cocoa, Robusta Coffee, White Sugar, Feed Wheat, Milling Wheat, Rapeseed and Corn. Further Information For up-to-date information on our range of fixed income, equity and commodity derivatives products and services, please visit: www.nyx.com/nyseliffe Or contact: Fixed Income Derivatives +44 (0)20 7379 2222 stirs@nyx.com Equity Derivatives +44 (0)20 7379 2200 equities@nyx.com Commodity Derivatives +44 (0)20 7379 2588 commodities@nyx.com The futures contracts, alongside the associated options contracts, are extensively used for price-risk management by producers, exporters, trade-houses, processors, refiners and manufacturers. In addition, they are actively traded by managed funds, proprietary traders, institutional investors and market makers looking for exposure to soft and agricultural commodity markets. The level of liquidity combined with the price volatility inherent in the underlying markets provides a wide range of trading opportunities over both the short and long term, as well as offering effective portfolio diversification. Trading strategies commonly used in these markets include calendar spreads and arbitrage against other related markets.

About NYSE Euronext

NYSE Euronext (NYX) is a leading global operator of financial markets and provider of innovative trading technologies. The companys exchanges in Europe and the United States trade equities, futures, options, fixed-income and exchange-traded products. With approximately 8,000 listed issues (excluding European Structured Products), NYSE Euronexts equities markets the New York Stock Exchange, NYSE Euronext, NYSE Amex, NYSE Alternext and NYSE Arca represent one-third of the worlds equities trading, the most liquidity of any global exchange group. NYSE Euronext also operates NYSE Liffe, one of the leading European derivatives businesses and the worlds secondlargest derivatives business by value of trading. The company offers comprehensive commercial technology, connectivity and market data products and services through NYSE Technologies. NYSE Euronext is in the S&P 500 index, and is the only exchange operator in the Fortune 500. For more information, please visit: http://www.nyx.com.

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4 TH A N N U A L H E D G E F U N D R E S E A R C H C O N F E R E N C E LY X O R R E S E A R C H A LT E R N AT I V E I N V E S T M E N T S & R I S K MANAGEMENT RESEARCH

Experience Driven by Acknowledged Research
Lyxor Asset Management derives its established experience as a leading asset manager from a unique and thorough research expertise. More than 20 research professionals are exclusively dedicated to providing macro-economic, alternative and quantitative research across all Lyxor businesses. The solid synergies developed between fund managers and research specialists ensure the robustness of every investment process. Their comprehensive missions involve hedge fund sourcing and selection, cross-asset investment strategy, risk analysis, and the design of new proprietary models. They also ensure regular presentations and academic publications (White Paper Series) to communicate these best practices and asset management methodologies to the industry. By focusing on critical topics such as portfolio construction, asset allocation and risk measurement, it leads to the development of new quantitative strategies and financial models that can be directly applied to Lyxor's investment solutions.

Innovative Investment Solutions

Lyxor is among a selected few asset managers to offer investors such a broad range of solutions from pure beta to alternative alpha: > Managed Account Platform: With about US$11 billion under management across more than 100 funds, the Lyxor Managed Account Platform offers the largest and everevolving investment universe, with more than 25 new managed accounts launched this year. The Platform also provides investors with unparalleled transparency - recently optimized by a sophisticated new website technology -, advanced risk monitoring and weekly liquidity. Thanks to its pioneering and innovation capacities, Lyxors Managed Account expertise has paved the way for tailor-made platforms for the biggest institutions willing to bring their own selected Hedge Funds within Lyxors technology and risk monitoring processes. > Funds of Hedge Funds: Lyxors range of funds of hedge funds relies on rigorous fund selection, dynamic portfolio allocation, and disciplined risk management. Lyxors funds of funds business is designed for clients with a broad range of liquidity and risk profiles. > Alternative Indexing: Lyxors range of 17 investable hedge fund indices and 13 index funds offers either direct exposure to the global hedge fund universe or to a specific hedge fund strategy. > ETFs & Index funds: Lyxor pionneered this market segment in Europe, with the launch of the first ETF on CAC40 in 2001, managing now 224 ETFs. Since then, Lyxor has become a market leader in Europe with more than 438 listings on equity, bond and commodity indices listed on 14 trading platforms worldwide. Lyxor also offers a complete range of index funds tracking all major markets and has developped a proprietary risk-weighted indexing model applied in open-ended funds and the Lyxor smartIX indices. > Quantitative Investments: Based on a renowned R&D team and a strong risk culture, Lyxor provides a full-range of cross-asset solutions, combining experience and skills in market access, trend-following and advanced diversification techniques. This quantitative expertise focuses on assets that are sufficiently liquid for market mechanisms to function properly.

Further Information www.lyxor.com Or contact: research@lyxor.com +33.1.42.13.76.75

> Structured Investments: With more than 10 years of success and innovation, Lyxor has been the first asset management company to specialise in structured funds and to this day has remained the leader in the field, offering one of the largest selections of cushion funds and formula funds in the market.

About Lyxor Asset Management

Lyxor Asset Management, subsidiary of Societe Generale Group, is a specialised provider of advanced investment solutions. We focus on offering innovative sources of performance anchored on research and risk management, with a maximum of safety, liquidity and transparency, adapted to our clients needs and risk/return profile. With over EUR 75.9 billion in assets under management*, Lyxor has established itself as a global player in four major growing investment specialties: alternative investments, index tracking (ETFs), quantitative investments and structured solutions. More than a decade of experience provided Lyxor with an in-depth knowledge and insights into asset allocation strategy and research. Employing more than 600 staff, Lyxor is present in every strategic investment locations in the world.
*As of November 30th 2011

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Lyxor Asset Management Tours Socit Gnrale - 17 Cours Valmy 92987 Paris La Dfense Cedex - France www.lyxor.com - research@lyxor.com

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