The Fix Is In: Properly Backing Out Backfill Bias

62 Pages Posted: 1 Aug 2017 Last revised: 31 Dec 2017

See all articles by Philippe Jorion

Philippe Jorion

University of California, Irvine - Paul Merage School of Business

Christopher Schwarz

University of California at Irvine

Date Written: December 22, 2017

Abstract

Hedge fund researchers have long known about backfill bias, typically correcting for it by truncating a fixed number of returns from the beginning of each fund’s return series. However, we document that this practice decreases the percentage of backfilled returns by only 25%. Thus, empirical conclusions using this correction are still biased by backfill, including average performance and performance’s relation with size, age, and other fund characteristics. Unfortunately, many databases do not include the listing dates needed to properly control for this bias (now including TASS.) We therefore propose a novel method to infer listing dates when not available.

Keywords: hedge funds, public database, performance evaluation, backfill bias, listing dates

JEL Classification: G11, G23, G32

Suggested Citation

Jorion, Philippe and Schwarz, Christopher, The Fix Is In: Properly Backing Out Backfill Bias (December 22, 2017). Available at SSRN: https://ssrn.com/abstract=3010469 or http://dx.doi.org/10.2139/ssrn.3010469

Philippe Jorion (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Campus Drive
Irvine, CA 92697-3125
United States
949-824-5245 (Phone)
949-824-8469 (Fax)

Christopher Schwarz

University of California at Irvine ( email )

Irvine, CA 92697-3125
United States

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