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

Kat, Harry M.; Amin, Gaurav S.

doi:10.2139/ssrn.293828

Cited by 20 publications

(6 citation statements)

References 8 publications

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“…Survivorship bias definitely biases the average returns across all funds. Both Liang (2000) and Kat and Amin (2001) estimated survivorship bias as around 2% per year. Table 3 reports the mean, standard deviation, and the Sharpe ratio for both S&P500 and the equal-weighted portfolio of the hedge funds for each year.…”

Section: Datamentioning

confidence: 99%

Performance persistence and the source of returns for hedge funds

Harri

Brorsen

2004

Applied Financial Economics

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Hedge funds exhibit performance persistence if some funds have consistently higher returns than others. Several procedures are used to determine if performance persists. The results show that performance persists in hedge funds with some funds showing the greatest persistence across all procedures. The results also indicate a strong negative relation between hedge fund capitalization and returns, which is consistent with the hypothesis that hedge fund managers exploit market inefficiencies.

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Section: Datamentioning

confidence: 99%

Performance persistence and the source of returns for hedge funds

Harri

Brorsen

2004

Applied Financial Economics

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“…Finally, they provide access to information and professional portfolio management that would otherwise be difficult and expensive to obtain. Brown, Fraser and Liang (2008) show that op- 1 See, among others, Ackermann, McEnally and Ravenscraft (1999), Lhabitant and Learned (2002), Amin and Kat (2003), Kat and Amin (2003), Capocci and Hubner (2004), Fung and Hsieh (2004), and Fung et al (2007). 2 For funds in the TASS database, the total value of assets under management for funds of funds is $156 billion compared to $635 billion for hedge funds as of June 2006.…”

Section: Introductionmentioning

confidence: 99%

Do Funds-of-Funds Deserve Their Fees-on-Fees?

Ang¹,

Rhodes‐Kropf²,

Zhao³

2008

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for helpful conversations and comments. We are grateful to seminar participants at Columbia University, the Conference Board, the BSI GAMMA conference on hedge funds in Milan, The Federal Reserve Bank of Atlanta Financial Markets Conference, the American Finance Association, and the Western Finance Association for helpful comments. The authors acknowledge funding from a grant from the BSI GAMMA Foundation. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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“…This has led to a high attrition rate 4 (Brown et al, 1999(Brown et al, , 2001a(Brown et al, , 2001bLiang, 1999) which has also increased significantly over time. Only 90.9% of funds that were alive in 1996 were still alive in 1999, while this declined to 59.5% in 2001(Kat & Amin, 2001. Furthermore, Kaiser and Haberfelner (2012) found that the attrition rate for hedge funds has nearly doubled since the financial crisis.…”

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The Bias Ratio As A Hedge Fund Fraud Indicator: An Empirical Performance Study Under Different Economic Conditions

Dyk

Vuuren

Heymans

2014

IBER

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The Sharpe ratio is widely used as a performance evaluation measure for traditional (i.e., long only) investment funds as well as less-conventional funds such as hedge funds. Based on meanvariance theory, the Sharpe ratio only considers the first two moments of return distributions, so hedge funds -characterised by complex, asymmetric, highly-skewed returns with non-negligible higher moments -may be misdiagnosed in terms of performance. The Sharpe ratio is also susceptible to manipulation and estimation error. These drawbacks have demonstrated the need for augmented measures, or, in some cases, replacement fund performance metrics. Over the period January 2000 to December 2011 the monthly returns of 184 international long/short (equity) hedge funds with investment mandates that span the geographical areas of North America, Europe, and Asia were examined. This study compares results obtained using the Sharpe ratio (in which returns are assumed to be serially uncorrelated) with those obtained using a technique which does account for serial return correlation. Standard techniques for annualising Sharpe ratios, based on monthly estimators, do not account for serial return correlation -this study compares Sharpe ratio results obtained using a technique which accounts for serial return correlation. In addition, this study assess whether the Bias ratio supplements the Sharpe ratio in the evaluation of hedge fund risk and thus in the investment decision-making process. The Bias and Sharpe ratios were estimated on a rolling basis to ascertain whether the Bias ratio does indeed provide useful additional information to investors to that provided solely by the Sharpe ratio.Keywords: Hedge Funds; Bias Ratio; Fraud; Risk Management; Sharpe Ratio INTRODUCTIONnstitutional investors and wealthy individuals have for a long time been interested in hedge funds as alternative investments to traditional asset portfolios, while the public's interest in the hedge fund industry has also increased through spectacular hedge fund activities, such as the collapse of Long Term Capital Management (LTCM) in the late 1990's. Since the early 1990's, hedge funds have become an increasingly popular asset class as global investment rose from US$50bn in 1990 to US$2.2tn in early 2007 (Barclayhedge, 2013). In March 2012, long/short equity funds accounted for the largest portion -23% -of the industry by assets (Citi, 2012). The hedge fund industry posted its sturdiest gains, in terms of asset flows and performance, between 2003 to 2007 where after the financial crisis significantly curtailed growth. However, industry growth reversed, declining to US$1.4tn by April 2009 due to substantial investor redemptions and performance-based declines (Eurekahedge, 2012). In April 2013, total assets under management (AUM) for the hedge fund industry had risen to only US$1.9tn (Eurekahedge, 2013) Source: Barclayhedge (2013) Although most comparisons of hedge fund returns concentrate exclusively on total return values, comparing funds with different expec...

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

Cited by 20 publications

References 8 publications

Performance persistence and the source of returns for hedge funds

Performance persistence and the source of returns for hedge funds

Do Funds-of-Funds Deserve Their Fees-on-Fees?

The Bias Ratio As A Hedge Fund Fraud Indicator: An Empirical Performance Study Under Different Economic Conditions

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