The Delisting Bias in Hedge Fund Databases
Posted: 11 Aug 2013 Last revised: 21 Jun 2014
Date Written: August 1, 2013
As is well known, hedge fund databases suffer from various types of serious biases. While many of these biases have been addressed, the delisting bias is much more difficult to control. In this paper, we use information from three hedge fund databases to provide direct estimates of this bias. Based on the fact that funds delisted in one database often continue to report returns to another, we estimate the delisting bias is at least 35bp per annum. Our analysis also provides estimates of frequencies and average losses for different delisting reasons. The delisting bias largely explains the puzzling differences between the performance of the direct hedge fund investments and that implied by funds of hedge funds. We estimate that the performance of hedge fund indices should be adjusted downward by about 50bp to account for the delisting bias.
Keywords: hedge funds, survivorship bias, delisting bias, performance evaluation
JEL Classification: G11, G23, G32
Suggested Citation: Suggested Citation