Adam L. Aiken
Quinnipiac University

Christopher P. Clifford
University of Kentucky

Jesse A. Ellis
University of Alabama - Department of Economics, Finance and Legal Studies

Abstract

We examine the self-selection bias in voluntarily reported hedge fund performance data. Using data from a set of fund-of-funds, we construct a novel set of returns for hedge funds that otherwise have never reported to a commercial database. These returns allow, for the first time, a direct comparison of performance between funds that choose to report to commercial databases and funds that do not. We find evidence that most of the average fund’s alpha can be explained by its decision to voluntarily report its performance to a database. Additionally, the nature of our data allows us to measure the performance of funds even after they exit the databases - the so-called "dead" funds. After delisting from databases, funds have dramatically lower performance than funds that continue reporting to a database. However, even when controlling for dead funds, we find a large and positive self-selection bias in voluntarily reported hedge fund performance data.