Uncovering hedge fund skill from the portfolios they hide

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 confi-dentiality more frequently. Stocks in these holdings are disproportionately associated with information-sensitive events or share characteristics indicating greater informa-tion 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. MANDATORY DISCLOSURE OF HOLDINGS in public companies by investors is an essential part of securities market regulation. At the core of this regulation is Section 13(f) of the Securities Exchange Act of 1934, which requires institu