Historical data is used to analyze the risk of portfolios and strategies. However, after a hedge fund is closed, the historical data of that hedge fund is seldom included in data for future studies. Which of the following is most likely a reason for the removal of a hedge fund’s data?
 
A. Funds that are shut down wish to disclose data for legal reasons.
 
B. Regulators are aware of issues related to survivorship bias.
 
C. Investors desire the analysis of funds that are investible.
 
D. When including inactive fund data results are similar when survivorship bias is not present.
 
Answer:C
 
Historical data is used to analyze the risk of portfolios and strategies. However, after a hedge fund is closed, the historical data of that hedge fund is seldom included in data for future studies. The reason for the hedge fund’s removal is twofold. First, investors desire the analysis of funds that are investible. Second, funds that are shut down do not wish to disclose data for legal reasons. The exclusion of data from funds that are no longer active is known as survivorship bias. A few studies that have included data from inactive funds have found significantly different results when survivorship bias is not present.

 
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