We also examine the determinants of the return gap. We find that estimated trading costs are negatively related to the return gap. Also, most funds in our sample exhibit relatively large correlations between the hypothetical holdings returns and the investor returns, indicating that their actual investment strategies do not differ significantly from their disclosed strategies. However, some funds have relatively low correlations between holdings and investor returns. Our findings indicate that such opaque funds tend to exhibit particularly poor return gaps, which suggests that these funds may be subject to more agency problems, inducing them to camouflage their actual portfolio strategies. Further, we show that the return gap is positively.
