Fund Liquidation, Self-selection, and Look-ahead Bias in the Hedge Fund Industry
AbstractA wide range of empirical biases hampers hedge fund databases. In this paper we focus upon survival-related biases and disentangle look-ahead biases due to self-selection of funds and due to fund termination. Self-selection arises because funds voluntarily report their information to data vendors and may decide to stop doing so. By extending existing methodology, we analyze persistence in hedge fund performance over the period 1994-2000, taking into account the above biases. The results show that look-ahead biases due to liquidation and self-selection enforce each other and may lead to overestimating expected returns by as much as 8% per year. Overall, the results are consistent with positive persistence in hedge fund returns at horizons of two and four quarters. Copyright 2007, Oxford University Press.
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Bibliographic InfoArticle provided by European Finance Association in its journal Review of Finance.
Volume (Year): 11 (2007)
Issue (Month): 4 ()
Other versions of this item:
- ter Horst, J.R. & Verbeek, M.J.C.M., 2004. "Fund liquidation, self-selection and look-ahead bias in the hedge fund industry," ERIM Report Series Research in Management ERS-2004-104-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G3 - Financial Economics - - Corporate Finance and Governance
- M - Business Administration and Business Economics; Marketing; Accounting
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- Jackwerth, Jens Carsten & Kolokolova, Olga & Hodder, James E., 2008.
"Recovering Delisting Returns of Hedge Funds,"
11641, University Library of Munich, Germany, revised 31 Oct 2008.
- Jens Carsten Jackwerth & James E. Hodder & Olga Kolokolova, 2008. "Recovering Delisting Returns of Hedge Funds," CoFE Discussion Paper 08-09, Center of Finance and Econometrics, University of Konstanz.
- James E. Hodder & Jens Carsten Jackwerth & Olga Kolokolova, 2012. "Recovering Delisting Returns of Hedge Funds," Working Paper Series of the Department of Economics, University of Konstanz 2012-34, Department of Economics, University of Konstanz.
- Agarwal, Vikas & Fos, Vyacheslav & Jiang, Wei, 2012. "Inferring reporting biases in hedge fund databases from hedge fund equity holdings," CFR Working Papers 10-08 [rev.], University of Cologne, Centre for Financial Research (CFR).
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