Hedge Funds’ Misreporting: Evidence from 13F Holding Restatements by Sean Cao, Zhi Da, Xin Daniel Jiang and Baozhong Yang

Hedge Funds’ Misreporting: Evidence from 13F Holding Restatements by Sean Cao, Zhi Da, Xin Daniel Jiang and Baozhong Yang

1 Introduction
On July 10, 2020, the Securities and Exchange Commission (SEC) proposed a significant change
to the reporting threshold for Form 13F, raising it from $100 million to $3.5 billion.1 Originally
implemented in 1975, Form 13F required investment managers with more than $100 million under
investment to report their equity holdings quarterly. Over the subsequent 45 years, the number
of 13F filers increased dramatically. However, with the exponential growth in reporting volume,
systematic checks for accuracy were absent, and no fines were imposed for erroneous data. Despite
the proposed increase in the reporting threshold, the plan faced strong opposition from CEOs,
investment managers, major stock exchanges, institutional investors, and academics. Consequently,
it was ultimately abandoned, indicating the perceived value of 13F holdings reporting within the
investment community. This pushback also underscores the importance attached to 13F filings,
despite potential reporting errors.
The disclosure of 13F holdings is valuable to various market participants. Company executives,
for example, seek timely information about their shareholders, particularly to detect share accu-

mulation by activist investors. Fund managers also benefit from the availability of holdings data,
as it enables them to engage in front-running and copycat strategies. Managers thus face the costs
of disclosing proprietary information in making disclosure decisions (e.g., Verrecchia, 2001, Beyer,
Cohen, Lys and Walther, 2010, Lang and Sul, 2014, Leuz and Wysocki, 2016, Cao, Du, Yang, and
Zhang, 2021). Consequently, fund managers often request SEC permission to delay the disclosure
of “confidential holdings”, which have been found to be highly informative (Agarwal, Jiang, Tang,
and Yang, 2013, “AJTY” hereafter; Aragon, Hertzel, and Shi, 2013).
In addition to confidential filings, managers can submit 13F restatements to correct prior report-

ing errors. Our study focuses on hedge fund companies, as they are arguably the most informative
and have greater incentives to avoid disclosure. In our sample of 1,673 hedge fund companies,

restatements are just as prevalent as confidential filings, accounting for 3.39% and 3.55% of 13F
filings, respectively. Surprisingly, the use of restatements by hedge fund companies has not been
thoroughly examined, and our paper aims to address this gap.
Although the SEC allows investment companies to file restatements to correct honest mistakes
in previous 13F filings, in practice, hedge fund managers may also exploit restatements to rectify
intentionally misreported holdings. For instance, a fund manager might initiate trading based on
a short-lived private signal before the quarter-end. Consequently, on the subsequent original filing
date (within 45 days after the previous quarter’s end), the manager may not have completed their
trades, leading to a misreporting of their previous quarter-end holdings to conceal their trading
intention. Subsequently, when the private signal becomes public, the manager files a restatement
to correct the initial misreporting. Furthermore, the manager could even use the restatement to
encourage copycat trading, which facilitates price convergence. Given the lack of systematic checks
by the SEC regarding the accuracy of 13F filings, managers may perceive misreporting during the
period between the original filing date and the restatement date as a relatively low-cost strategy.
To examine restatements driven more by strategic considerations than honest mistakes, we
exclude restatements filed only one day after the original filing and those filed to correct technical
errors (i.e., technical restatements). We also exclude filings with a large number of holdings and filed
by hedge fund companies managing a significant number of funds (i.e., non-suspect restatements),
as the likelihood of honest mistakes increases in such cases. Our analysis focuses on the remaining
921 restatements (i.e., suspect restatements).
Under the null hypothesis that restatements are solely used to correct honest mistakes, we
would not expect holdings affected by restatements to be associated with abnormal returns. How-

ever, our analysis reveals the opposite. For example, we find that new holdings disclosed in suspect
restatements exhibit annualized abnormal returns of 12.985% during the restatement period, ex-

tending from the end of the previous quarter to the restatement date or the end of the curren

Hedge Funds’ Misreporting: Evidence from 13F Holding Restatements by Sean Cao, Zhi Da, Xin Daniel Jiang and Baozhong Yang