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Out of the Dark: Hedge Fund Reporting Biases and Commercial Databases

Review of Financial Studies (Forthcoming)

77 Pages Posted: 19 Dec 2009 Last revised: 19 Sep 2012

Adam L. Aiken

Elon University

Christopher P. Clifford

University of Kentucky

Jesse A. Ellis

North Carolina State University

Date Written: July 6, 2012

Abstract

We examine the potential for selection bias in voluntarily reported hedge fund performance data. We construct a novel set of hedge fund returns that have never been reported to a commercial hedge fund database. These returns allow a direct comparison of performance between funds that choose to report to commercial databases and funds that do not. We find that funds that report their performance to commercial databases significantly outperform non-reporting funds. Our results suggest that the voluntarily reported performance in commercial databases suffers from a selection bias that may exaggerate the average skill of the universe of hedge fund managers.

Keywords: Hedge Funds, Fund of Funds, Data Biases, Performance Measurement

JEL Classification: G11, G23

Suggested Citation

Aiken, Adam L. and Clifford, Christopher P. and Ellis, Jesse A., Out of the Dark: Hedge Fund Reporting Biases and Commercial Databases (July 6, 2012). Review of Financial Studies (Forthcoming). Available at SSRN: https://ssrn.com/abstract=1519914 or http://dx.doi.org/10.2139/ssrn.1519914

Adam L. Aiken

Elon University ( email )

100 Campus Drive
Elon, NC 27244
United States

Christopher P. Clifford (Contact Author)

University of Kentucky ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States
859-257-3850 (Phone)

Jesse A. Ellis

North Carolina State University ( email )

Poole College of Management
Campus Box 7229
Raleigh, NC 27695
United States
919-515-9670 (Phone)

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