Hedge funds databases are typically subject to high attrition rates because of fund termination and self-selection. Even when all funds are included up to their last available return, one cannot prevent that ex post conditioning biases a.ect standard estimates of performance persistence. In this paper we analyze the persistence in the performance of U.S. hedge funds taking into account look-ahead bias (multi-period sampling bias). To do so, we model attrition of hedge funds and analyze how it depends upon historical performance. Next, we use a weighting procedure that eliminates look-ahead bias in measures for performance persistence. The results show that the impact of look-ahead bias is quite severe, even though positive and negative survival-related biases are sometimes suggested to cancel out. At horizons of one and four quarters, we find clear evidence of positive persistence in hedge fund returns, also after correcting for investment style. At the two-year horizon, past winning funds tend to perform poorly in the future.

hedge funds, individual profiles, investments, performance measurement, survival
Contingent Pricing; Futures Pricing (jel G13), Corporate Finance and Governance (jel G3), Capital Budgeting; Investment Policy (jel G31), Business Administration and Business Economics; Marketing; Accounting (jel M), Accounting (jel M41)
Erasmus Research Institute of Management
ERIM Report Series Research in Management
Copyright 2002, G. Baquero, J. ter Horst, M. Verbeek, This report in the ERIM Report Series Research in Management is intended as a means to communicate the results of recent research to academic colleagues and other interested parties. All reports are considered as preliminary and subject to possibly major revisions. This applies equally to opinions expressed, theories developed, and data used. Therefore, comments and suggestions are welcome and should be directed to the authors.
Erasmus Research Institute of Management

Baquero, G, ter Horst, J.R, & Verbeek, M.J.C.M. (2002). Survival, Look-Ahead Bias and the Persistence in Hedge Fund Performance (No. ERS-2002-104-F&A). ERIM Report Series Research in Management. Erasmus Research Institute of Management. Retrieved from http://hdl.handle.net/1765/255