50、An analyst compared the performance of a hedge fund index with the performance of a major stock index over the past eight years. She noted that the hedge fund index (created from a database) had a higher average return, higher standard deviation, and higher Sharpe ratio than the stock index. All the successful funds that have been in the hedge fund database continued to accept new money over the eight-year period. Are the average return and the standard deviation, respectively, for the hedge fund index most likely overstated or understated?
| Average return for the
hedge fund index | Standard deviation for
the hedge fund index | A. | Overstated | Overstated | B. | Overstated | Understated | C. | Understated | Overstated | D. | Understated | Understated |
A. Answer A B. Answer B C. Answer C D. Answer D
Correct answer = B
"Alternative Investments," Bruno Solnik and Dennis McLeavey
2008 Modular Level I, Vol. 6, pp. 217-222
Study Session 18-76-l
discuss the performance of hedge funds and the biases present in hedge fund performance measurement, and explain the effect of survivorship bias on the reported return and risk measures for a hedge fund database
Survivorship bias affects both the returns and the risk (standard deviation) reported for the hedge funds. Hedge funds with low or negative returns will be excluded from the index as will funds with high volatility; those funds will not survive for eight years. If only the successful funds remain in the index, the returns are overstated and the risk is understated. Overstated returns and understated risk will both tend to overstate the Sharpe ratio. | 
发表于 2008-5-27 15:26
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