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Gauging Form PF: Data Tolerances in Regulatory Reporting on Hedge Fund Risk Exposures

Author

Listed:
  • Mark D. Flood

    (Office of Financial Research)

  • Phillip Monin

    (Office of Financial Research)

  • Lina Bandyopadhyay

    (Federal Reserve Bank of Chicago)

Abstract

This paper examines the precision of the U.S. Securities and Exchange Commission's Form PF as an instrument for measuring market risk exposures in the hedge fund industry. We introduce a novel methodology that systematically presents the measurement instrument, Form PF, with a range of simulated portfolios with observable characteristics. We assess the measurement tolerances of Form PF by examining the range of actual market risk exposures -- measured directly from portfolio details -- that are consistent with a given, fixed presentation on the form. We find that Form PF's measurement tolerances are sufficiently large to allow private funds with dissimilar actual risk profiles to report similar risks to regulators. We also find that the form's stratification by value at risk (Form PF Question 40) helps significantly to narrow the measurement tolerances.

Suggested Citation

  • Mark D. Flood & Phillip Monin & Lina Bandyopadhyay, 2015. "Gauging Form PF: Data Tolerances in Regulatory Reporting on Hedge Fund Risk Exposures," Working Papers 15-13, Office of Financial Research, US Department of the Treasury.
    • Handle: RePEc:ofr:wpaper:15-13
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    References listed on IDEAS

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    Cited by:

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    2. Daniel Barth & Juha Joenvaara & Mikko Kauppila & Russ Wermers, 2020. "The Hedge Fund Industry is Bigger (and has Performed Better) Than You Think," Working Papers 20-01, Office of Financial Research, US Department of the Treasury.
    3. Mark D. Flood & Phillip Monin, 2016. "Form PF and Hedge Funds: Risk-measurement Precision for Option Portfolios," Working Papers 16-02, Office of Financial Research, US Department of the Treasury.
    4. Mathias S. Kruttli & Phillip J. Monin & Sumudu W. Watugala, 2017. "Investor Concentration, Flows, and Cash Holdings : Evidence from Hedge Funds," Finance and Economics Discussion Series 2017-121, Board of Governors of the Federal Reserve System (U.S.).
    5. Daniel Barth & Phillip Monin, 2020. "Illiquidity in Intermediate Portfolios: Evidence from Large Hedge Funds," Working Papers 20-03, Office of Financial Research, US Department of the Treasury.
    6. Kruttli, Mathias S. & Monin, Phillip J. & Watugala, Sumudu W., 2022. "The life of the counterparty: Shock propagation in hedge fund-prime broker credit networks," Journal of Financial Economics, Elsevier, vol. 146(3), pages 965-988.

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