Ways to remedy the overstated performance of non-investable hedge fund indexes
Survivorship bias is one of the biggest causes of grossly overstated hedge fund index performance. Considering the returns of surviving funds alone leads to a strong upward bias.
The biases that inflate the performance of hedge funds have been well documented in the financial literature. Survivorship bias, which results from the ex post exclusion of unsuccessful funds from databases, is clearly one of the greatest causes of grossly overstated performance.
Considering the returns of surviving funds alone leads to a strong upward bias, according to recent studies (up to 442 basis points (bp) as demonstrated by Malkiel and Saha [2005]).
Backfill bias or instant history bias
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