Seeking Alpha- Hedge funds tend to report better than average returns in December. This isn’t the greatest surprise, since they can earn massive incentive fees (typically 20% of gross profits) based on their year-end performance.
As discussed in their paper “Why is Santa so kind to hedge funds? – the December return puzzle”, authors Vikas Agarwal, Naveen Daniel and Narayan Naik found that this spike in December returns tends to come mainly from those managers that have the ability to inflate their returns, through favorable marking of positions, or aggressive year end trading, among many other interesting findings and interpretations.
I did some research to replicate the authors findings and sure enough, I found that by looking at index data from Hedge Fund Research [HFR], I found that December returns were by far better than average monthly returns, about 1.2% better in aggregate.
