An Examination of Hedge Fund Survivorship Bias and Attrition Before and During the Global Financial Crisis
The Journal of Alternative Investments, 13(4), 40- 52, March 2011
Xiaoqing Eleanor Xu, Ph.D., CFA Department of Finance
Anthony L Loviscek, Ph.D.Department of Finance
The impact of the recent global financial crisis has been deep and broad, blanketing the financial and economic landscape and hammering the hedge fund industry. Using both active and inactive hedge fund return data from the CISDM database from January of 1994 to March of 2009, we measure survivorship bias and account for attrition rates of hedge funds before and during the crisis. Surprisingly, we do not find survivorship bias to be notably significant during the global financial crisis. However, we find unprecedented attrition rates, along with record declines in assets under management and fund closures, during the crisis. In addition, our results from the pre-crisis period reveal that survivorship bias and attrition differ dramatically by strategy and size. However, this pattern disappears during the global financial crisis, as all strategies and sizes experience unprecedented attrition, indicating that few funds were spared the crisis.