Market Graphic - Return-smoothing
Hedge funds that trade illiquid securities are more likely to smooth their returns, especially when the securities concerned are ABS or MBS, according to recent research
Recent research into the trading patterns of hedge funds has shown that at least 30% of hedge funds trading illiquid strategies are smoothing their returns. The research, conducted by risk management company Riskdata, is based on an indicator called the bias ratio which can help detect manipulation of net asset values (NAV) when illiquid securities are involved. It can also help recognise the presence of illiquid securities where they shouldn't exist.
The bias ratio relies on analysing fund
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