The Delisting Bias in Hedge Fund Databases

Posted: 11 Aug 2013 Last revised: 21 Jun 2014

See all articles by Philippe Jorion

Philippe Jorion

University of California, Irvine - Paul Merage School of Business

Christopher Schwarz

University of California at Irvine

Date Written: August 1, 2013

Abstract

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

Jorion, Philippe and Schwarz, Christopher, The Delisting Bias in Hedge Fund Databases (August 1, 2013). Journal of Alternative Investments, Vol. 16, 2014. Available at SSRN: https://ssrn.com/abstract=2308399 or http://dx.doi.org/10.2139/ssrn.2308399

Philippe Jorion

University of California, Irvine - Paul Merage School of Business ( email )

Campus Drive
Irvine, CA 92697-3125
United States
949-824-5245 (Phone)
949-824-8469 (Fax)

Christopher Schwarz (Contact Author)

University of California at Irvine ( email )

Irvine, CA 92697-3125
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
969
PlumX Metrics