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Article

The Delisting Bias in Hedge Fund Databases

Philippe Jorion and Christopher Schwarz
The Journal of Alternative Investments Winter 2014, 16 (3) 37-47; DOI: https://doi.org/10.3905/jai.2013.16.3.037
Philippe Jorion
is a professor at the Paul Merage School of Business at the University of California at Irvine and managing director at Pacific Alternative Asset Management Company (PAAMCO) in Irvine, CA.
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  • For correspondence: pjorion@uci.edu
Christopher Schwarz
is an assistant professor at the Paul Merage School of Business at the University of California at Irvine in Irvine, CA.
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  • For correspondence: cschwarz@uci.edu
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Abstract

As is well known, hedge fund databases suffer from various types of serious biases. While many of these biases have been addressed, the delisting bias is much more difficult to control. In this article, the authors use information from three hedge fund databases to provide direct estimates of this bias. Based on the fact that funds delisted in one database often continue to report returns to another, they estimate the delisting bias is at least 35 bps per annum. Their analysis also provides estimates of frequencies and average losses for different delisting reasons. The delisting bias largely explains the puzzling differences between the performance of the direct hedge fund investments and that implied by funds of hedge funds. The authors estimate that the performance of hedge fund indices should be adjusted downward by about 50 bps to account for the delisting bias.

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The Journal of Alternative Investments: 16 (3)
The Journal of Alternative Investments
Vol. 16, Issue 3
Winter 2014
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The Delisting Bias in Hedge Fund Databases
Philippe Jorion, Christopher Schwarz
The Journal of Alternative Investments Dec 2013, 16 (3) 37-47; DOI: 10.3905/jai.2013.16.3.037

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The Delisting Bias in Hedge Fund Databases
Philippe Jorion, Christopher Schwarz
The Journal of Alternative Investments Dec 2013, 16 (3) 37-47; DOI: 10.3905/jai.2013.16.3.037
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  • Article
    • Abstract
    • LITERATURE REVIEW
    • DATABASE MATCHES
    • ESTIMATES OF DELISTING BIASES
    • ESTIMATES OF OMITTED DELISTING RETURNS
    • IMPLICATIONS FOR HEDGE FUND VERSUS FoF FUNDS PERFORMANCE
    • CONCLUSIONS
    • ENDNOTES
    • REFERENCES
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