What on earth is the difference between self selection bias and backfilling bias, in regards to HF measurement reporting biases? They seem identical.
Hi frgna,
I think the main difference is that self-selection bias is more broadly defined within the hede fund industry. Self-selection bias just refers to the idea of better-performing hedge funds being more likely to report than poor-performing hedge funds.
Backfilling bias is more specific and refers to the practice of starting hedge funds choosing to not report in these indices until they have developed a proven track record and then “backfill” the database - thus creating the appearance of an inflated past performance within the industry in the index.
I think one could say that backfilling is a form of self-selection bias actually, because they both describe the willingness to report on their performance.
I hope this makes sense. It can be a tricky concept at first.
Good luck.
Thanks Pepe - I think that all makes sense. I’d be shocked if this came up on the exam…but if it does…drinks on me!!!