Survival, Look-Ahead Bias, and Persistence in Hedge Fund Performance
Open accessAbstract
We analyze the performance persistence in hedge funds taking into account look-ahead bias (multi-period sampling bias). We model liquidation of hedge funds by analyzing how it depends upon historical performance. Next, we use a weighting procedure that eliminates look-ahead bias in measures for performance persistence. In contrast to earlier results for mutual funds, the impact of look-ahead bias is exacerbated for hedge funds due to their greater level of total risk. At the four-quarter horizon, look-ahead bias can be as much as 3.8%, depending upon the decile of the distribution. We find positive persistence in hedge fund quarterly returns after correcting for investment style. The empirical pattern at the annual level is also consistent with positive persistence, but its statistical significance is weak.
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Survivorship bias is unlikely to materially affect the findings.
“Overall, these comparisons show that survivorship bias is unlikely to materially affect our findings.”
From The Growth and Performance of Artificial Intelligence in Asset Management (2026) · cites this paper as Baquero, Ter Horst, and Verbeek, 2005
The Introduction says fund survival can bias performance analysis. The Concluding remarks describe a typical 2% annual effect associated with survivorship bias and stress the importance of correcting for it. The paper therefore does not support treating survivorship bias as immaterial; it also cannot establish the effect on the citing authors’ particular findings. (LLM, conf=0.78)
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Experimental — accuracy not yet measuredThe requirement of at least 12 months of returns for alpha estimation could introduce an implicit survivorship bias.
“Although our sample includes both live and dead funds, the requirement of at least 12 months of returns for alpha estimation could introduce an implicit survivorship bias (Baquero, Ter Horst, and Verbeek, 2005).”
From The Growth and Performance of Artificial Intelligence in Asset Management (2026) · cites this paper as Baquero, Ter Horst, and Verbeek, 2005
The Introduction (p. not available) says that conditioning on a fund’s survival over consecutive periods can bias performance analysis, even when returns from funds that later disappear are included. Section 4 describes a one-year return-history requirement that makes rankings conditional on survival. The paper calls this look-ahead bias, however, and does not examine a 12-month requirement for alpha estimation specifically. (LLM, conf=0.84)
Experimental — accuracy not yet measured
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Cites
On Persistence in Mutual Fund Performance
Carhart, M. M. (1997) · The Journal of Finance · doi:10.1111/j.1540-6261.1997.tb03808.x · Cited by 17,283 · see citing works
Mutual Fund Flows and Performance in Rational Markets
Berk, J. B., & Green, R. C. (2004) · Journal of Political Economy · doi:10.1086/424739 · Cited by 2,083 · see citing works
Flagged first, then by citations
Research works printed but not linked: 22
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Cited by
Sorted by citations
The Growth and Performance of Artificial Intelligence in Asset Management
Chen, S., Sialm, C., & Xu, D. (2026) · National Bureau of Economic Research · doi:10.3386/w35273
- Authors
- Baquero, G., ter Horst, J., & Verbeek, M.
- Affiliations
- European School of Management and Technology (DE)
- Erasmus University Rotterdam (NL)
- Venue
- Journal of Financial and Quantitative Analysis
- Publisher
- Cambridge University Press (CUP)
- Published
- 2005-09
- Volume
- 40
- Issue
- 3
- Pages
- 493-517
- ISSN
- 0022-1090 (ISSN-L)
- 1756-6916
- OpenAlex
- W2169434623
- Cited by
- 305
- References
- 2
- Citations by year
- 2026: 7 · 2025: 2 · 2024: 35 · 2023: 4 · 2022: 8 · 2021: 6 · 2020: 6 · 2019: 6 · 2018: 7 · 2017: 8 · 2016: 17 · 2015: 14 · 2014: 14 · 2013: 21 · 2012: 18
- FWCI
- 26.01
- Type
- journal article
- Language
- en
- Open access
- green
- doi.org
- Locations
- Journal of Financial and Quantitative Analysis (publishedVersion)
- SSRN Electronic Journal (acceptedVersion)
- Research portal (Tilburg University) (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- EUR Research Repository (Erasmus University Rotterdam) (submittedVersion)
- Data Archiving and Networked Services (DANS) (submittedVersion)
- Data Archiving and Networked Services (DANS) (submittedVersion, other-oa)
- SSRN Electronic Journal (submittedVersion)
- ERIM Report Series Research in Management (submittedVersion)
- RePub (Erasmus University Rotterdam) (submittedVersion, other-oa)
- RePub (Erasmus University Rotterdam) (submittedVersion)
- ERIM Top-Core Articles
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Risk and Volatility Modeling
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Keywords
- hedge funds, performance persistence, look-ahead bias, sampling bias, performance measurement, investment style, total risk
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