Burying the Myth of Survivorship Bias

This article presents the results of a research effort to assess the impact of survivorship bias within hedge fund indexes. Survivorship bias represents the tendency for indexes to be overstated due to the exclusion of poor performing funds. Since hedge fund indexes include funds that report voluntarily, there are a number of factors that affect survivorship bias. The results of two studies indicate that more funds stopped reporting after periods of positive results (closing to new investors) than due to negative performance (failure).