EconPapers    
Economics at your fingertips  
 

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

Gaurav S. Amin () and Harry Kat ()
Additional contact information
Gaurav S. Amin: ICMA Centre, University of Reading

ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading

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.

Pages: 33 pages
Date: 2001-12, Revised 2002-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
http://www.icmacentre.ac.uk/pdf/discussion/DP2002-02.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.icmacentre.ac.uk/pdf/discussion/DP2002-02.pdf [302 Found]--> https://www.icmacentre.ac.uk/pdf/discussion/DP2002-02.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rdg:icmadp:icma-dp2002-02

Access Statistics for this paper

More papers in ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading Contact information at EDIRC.
Bibliographic data for series maintained by Marie Pearson ().

 
Page updated 2021-10-11
Handle: RePEc:rdg:icmadp:icma-dp2002-02