Benchmark biases

What is the inclusion bias?

For HF, inclusion bias (back-fill bias) is when a HF decide to report its number, all of its past performance is also included into the index. What is the problem here? Well, if you a HF manager, would you rather report good number or bad number. Therefore…the bias here is a upward bias for the index. Good??

So you are stating that back-fill bias and inclusion bias is the same?

At least that was my impression reading the material. Somebody please correct me if I misread.

Yes they are.

^thanks for the confirm.

Inclusion bias = back-fill bias b/c If I include say a HF into my index I incorporate all its historical data (Back-fill bias) that is going to be most likely “positive” or else a manager wouldn’t want to be added which inflates the returns. I decide to be “included” in the database/index b/c my returns are “good” and not bad.

WHAT??? You mean those guys cherry-pick their returns??? No friggin way!!!

Never… I love looking through the HFR database and seeing funds that were +20% thru Oct 2007 and then stopped reporting… I wonder why??