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Hedge Funds: The Living and theDead

Published online by Cambridge University Press:  06 April 2009

Bing Liang
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Abstract

In this paper, I examine survivorship bias in hedgefund returns by comparing two large databases. Ifind that the survivorship bias exceeds 2% per year.Results of survivorship bias by investment stylesindicate that the biases are different acrossstyles. I reconcile the conflicting results aboutsurvivorship bias in previous studies by showingthat the two major hedge fund databases containdifferent amounts of dissolved funds. Empiricalresults show that poor performance is the mainreason for a fund's disappearance. Furthermore, Ifind that there are significant differences in fundreturs, inception date, net assets value, incentivefee, management fee, and investment styles forthe465 common funds covered by both databases.Mismatching between reported returns andthepercentage change in NAVs can partially explain thedifferences in returns.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 35 , Issue 3 , September 2000 , pp. 309 - 326
Copyright
Copyright © School of Business Administration, University of Washington 2000

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Footnotes

*

Weatherhead School of Management, Case WesternReserve University, Cleveland, OH 44106. I thankStephen Brown (the editor), Anurag Gupta, DavidHsieh (the referee), Ji-Chai Lin, Tim Loughran,Ranga Narayanan, Ajai Singh, Sam Thomas, andseminar participants at Case AssociationInternational for helpful comments. The paper wassupported by a research grant from the WeatherheadSchool of Management at Case Western ReserveUniversity. I am grateful of Hedge Fund Research,Inc. and TASS Management Limited for providing thedata.

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