We find a significant discontinuity around zero in the pooled distribution of reported monthly hedge fund returns. The discontinuity is present in live funds,
defunct funds, and in funds of all ages, suggesting that it is not the result of database biases. The discontinuity is absent in the three months culminating in
an audit, in funds that invest in liquid assets, and in hedge fund risk factors, suggesting that it is generated neither by the skill of managers to avoid losses
nor by nonlinearities in hedge fund assets. A remaining explanation is that hedge fund managers avoid reporting losses to attract and retain investors.