SSRN-Welcome to the Dark Side: Hedge Fund Attrition and Survivorship Bias over the Period 1994-2001 by Harry Kat, Gaurav Amin

  Paper Stats:
   Abstract Views: 5157
   Downloads: 1777
   Download Rank: 943

Welcome to the Dark Side: Hedge Fund Attrition and Survivorship Bias over the Period 1994-2001

HARRY M. KAT
City University London - Sir John Cass Business School
GAURAV S. AMIN
University of Reading - ICMA Centre

December 11, 2001

Cass Business School Research Paper

Abstract:
Hedge funds exhibit a high rate of attrition that has increased substantially over time. Using data over the period 1994-2001, we show that lack of size, lack of performance and an increasingly aggressive attitude of old and new fund managers alike are the main factors behind this. Although attrition is high, survivorship bias in hedge fund data is quite modest, which reflects the relatively small difference in performance between surviving and defunct funds. Concentrating on survivors only will overestimate the average hedge fund return by around 2% per annum. For small, young, and leveraged funds, however, the bias can be as high as 4-6%. We also find significant survivorship bias in estimates of the standard deviation, skewness and kurtosis of individual hedge fund returns. When not corrected for, this will lead investors to seriously overestimate the benefits of hedge funds. We find fund of funds attrition to be much lower than for hedge funds. Combined with a small difference in performance between surviving and defunct funds of funds, this yields relatively low survivorship bias estimates for funds of funds.

Keywords: Hedge fund, attrition, survivorship bias

JEL Classifications: G00

Working Paper Series

Suggested Citation

Kat, Harry M. and Amin, Gaurav S., "Welcome to the Dark Side: Hedge Fund Attrition and Survivorship Bias over the Period 1994-2001" (December 11, 2001). Cass Business School Research Paper Available at SSRN: http://ssrn.com/abstract=293828 or DOI: 10.2139/ssrn.293828

Export in: Export What's this?

Contact Information for HARRY M. KAT (Contact Author) Email address for HARRY M. KAT City University London - Sir John Cass Business School 106 Bunhill Row London EC1Y 8TZ United Kingdom +44 20 7040 8677 (Phone) +44 20 7040 8881 (Fax)
Contact Information for GAURAV S. AMIN Email address for GAURAV S. AMIN University of Reading - ICMA Centre Whiteknights Park P.O. Box 242 Reading RG6 6BA United Kingdom

SSRN Electronic Paper Collection

Download the document from:

Social Science Research Network

Chicago GSB

European Corporate Governance Institute

Korea University

Stanford Law School

Email Abstract or
Full Text Paper

Add to
My Briefcase

If you are experiencing download difficulties, click here.

Are you still having problems or need additional help? Contact us at Support@SSRN.Com.

Format Type	Number of Downloads	Date Posted	File Size	File name
Acrobat File	1777	Dec 17, 2001	156K	SSRN_ID293828_code011216100.pdf

The latest version of Adobe Acrobat Reader or Adobe Acrobat is required to view this paper. To obtain your free copy, click on the Acrobat button.

SSRN Resources

To search for other abstracts in the SSRN archival database, click here.

To order a membership to an SSRN Network or to subscribe to one or more of SSRN's journals, go to our online subscription request form.

To go to SSRN's main web site (www.ssrn.com), click here.