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The Journal of Alternative Investments

The Journal of Alternative Investments

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Article

Patterns in Asset Management Returns:
Evidence of Fraud in the Stanford Group Scandal?

Don M. Chance and Ashley R. Schexnaildre
The Journal of Alternative Investments Spring 2011, 13 (4) 73-79; DOI: https://doi.org/10.3905/jai.2011.13.4.073
Don M. Chance
is the James C. Flores Endowed Chair of MBA Studies and a professor of finance at Louisiana State University in Baton Rouge, LA.
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  • For correspondence: dchance@lsu.edu
Ashley R. Schexnaildre
is a portfolio manager with Commonwealth Advisors in Baton Rouge, LA.
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  • For correspondence: aschexdre@yahoo.com
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Abstract

Patterns in asset management returns provide red flags that managers could be manipulating performance data. As one piece of evidence in the prosecution of fraud and Ponzi scheme charges against R. Allen Stanford, two of his associates, and his firm, the Securities and Exchange Commission (SEC) noted that the firm had reported consecutive, identical four-digit returns of 15.71% in 1995 and 1996. The SEC has viewed this as evidence suggestive of long-term fraudulent activity. This article examines the likelihood of consecutive, identical four-digit returns using simulation over a variety of market parameters with both equity and interest rate volatility and several general types of investment strategies. Given the authors’ results on the frequency of this event and the fact that approximately 300,000 investment managers are active in the United States, that at least one manager in the United States would achieve consecutive, identical four-digit returns is a virtual certainty, and the expected number is likely to be a few hundred. The combination of consecutive, identical four-digit returns with evidence of fraud may be inculpatory evidence, but the former, by itself, should not be considered unusual for the totality of investment managers in the market.

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The Journal of Alternative Investments: 13 (4)
The Journal of Alternative Investments
Vol. 13, Issue 4
Spring 2011
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Patterns in Asset Management Returns:
Evidence of Fraud in the Stanford Group Scandal?
Don M. Chance, Ashley R. Schexnaildre
The Journal of Alternative Investments Mar 2011, 13 (4) 73-79; DOI: 10.3905/jai.2011.13.4.073

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Patterns in Asset Management Returns:
Evidence of Fraud in the Stanford Group Scandal?
Don M. Chance, Ashley R. Schexnaildre
The Journal of Alternative Investments Mar 2011, 13 (4) 73-79; DOI: 10.3905/jai.2011.13.4.073
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  • Article
    • Abstract
    • CONSECUTIVE, IDENTICAL FOUR-DIGIT RETURNS IN STOCK MARKET HISTORY
    • MONTE CARLO SIMULATION OF FOUR-DIGIT RETURNS FOR VARIOUS INVESTMENT STRATEGIES
    • CONCLUSIONS
    • ENDNOTES
    • REFERENCES
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