Are the following biases of historical hedge fund performance data likely to have a negative impact? --Self-selection bias---------Instant history bias-- A)-No----------------------------NO B)-No----------------------------Yes C)-Yes---------------------------No D)-Yes---------------------------Yes
both? … but then what is a ‘Instant history bias’???
Instant History refers to the fact that only successful hedge funds are included. so a manager may start several different hedge funds not all fo which survive, but only the successful ones are included. Kind of related to self selection bias in my mind
but that was ‘Survivorship bias’ in the hedge-fund world, wasn’t it?
I am not explaining this well, but it is more that when a successful fund enteres the DB, it brings an “instant history” (which I think is more related to the way the DB dealt with the lack of history by “backfilling” the history ) with it. So the past performance of the funds in the DB look better than it actually is. Survivorship bias I think is more that a fund that actually in the DB, disappears and no longer gets reproted on.
D googled it
Is “DB” = DATABASE? how do you actually create an instant history on a hedge fund if it just doesnt havent one? Do you mean projected results done by hedge fund manager base on existing performance? Survivorship bias is the continued reporting of only hedge funds that have survived along the way and dropped coverage of those that went bust. Therefore, average performance will only get better.
wouldn’t the suvivorship bias have a positive effect on results? and if so how can D be the ans
Does a negative impact means a poorer quality in results? Self-selection - hedge fund mgrs can choose to report results or not Instant history - projected results Therefore d is the answer cos both results in poor quality conclusions… Whats the answer Delhi?
well the way i see it if it is a bias already you know its not very good quality now it is to determine if they modify the result upwards or downwards…
What is the answer?
Also this is what riskglossary.com said about backfill (instant hisotry) bias backfill bias: When a hedge fund is added to an index, the fund’s past performance may be “backfilled” into the index. For example, if the fund has been in business for two years at the time it is added to the index, past index values are adjusted for those two years to reflect the fund’s performance during that period. Not all indexes backfill, but those that do introduce a bias. Usually, a hedge fund will start contributing data to an index to draw attention to recent strong performance. One of the oldest tricks in investment management is to launch multiple investment funds and then market those that happen to perform well. The practice is also common among hedge funds, who report the winners to indexes while closing down the losers. Also, index providers generally have criteria for adding a new fund to an existing index. This may include a minimum assets under management requirement, and successful funds are more likely to satisfy this criteria than unsuccessful ones. In summary, successful funds are more likely to be added to an index than unsuccessful ones, so this biases indexes that backfill. While backfilling is obviously a questionable practice, it is also quite understandable. When a provider first launches an index, they have an understandable desire to go back and construct the index for the preceding few years. If you look at time series of hedge fund index performance data, you will often note that indexes have very strong performance in the first few years, and this may be due to backfilling.
Ans is D… I had trouble with the instant history bias…went back and looked at the book, its explained there. (page 418, Reading 79) its not in schweser, the concept is, the term isn’t.
are you sure its not A? self selection and instant history bias should have a positive effect on peformance, not a negative effect…
Don’t worry about this one, the wording’s wonky…