Hedge Funds: The Living and the Dead

39 Pages Posted: 13 Apr 2000

See all articles by Bing Liang

Bing Liang

University of Massachusetts Amherst - Department of Finance

Date Written: February 2000


In this paper, we examine survivorship bias in hedge fund returns by comparing two large databases. We find that the survivorship bias exceeds 2% per year. We reconcile the conflicting results about survivorship bias in previous studies by showing that the two major hedge fund databases contain different amounts of dissolved funds. Empirical results show that poor performance is the main reason for a fund?s disappearance.

Furthermore, we find that there are significant differences in fund returns, inception date, net assets value, incentive fee, management fee, and investment styles for the 465 common funds covered by both databases. One database has more return and NAV observations, longer fund return history, and more funds with fee information than the other database. There are at least 5% return numbers and 5% NAV numbers which differ dramatically across the two databases. Mismatching between reported returns and the percentage changes in NAVs can partially explain the difference. The two databases also have different style classifications. Results of survivorship bias by styles indicate that the biases are different across styles and significant for ten out of fifteen styles in one database but none is significant for the other one.

JEL Classification: G12

Suggested Citation

Liang, Bing, Hedge Funds: The Living and the Dead (February 2000). Available at SSRN: https://ssrn.com/abstract=213012 or http://dx.doi.org/10.2139/ssrn.213012

Bing Liang (Contact Author)

University of Massachusetts Amherst - Department of Finance ( email )

Amherst, MA 01003
United States

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