We also find that time-varying positive alphas are much more likely to occur when the real asset market is performing poorly, suggesting that managers add more value in down markets than in up markets. Cross-sectionally, we find that actively managed funds have higher alphas than passively managed funds. In this paper, I examine survivorship bias in hedge fund returns by comparing two large databases. Results of survivorship bias by investment styles indicate that the biases are different across styles. I reconcile the conflicting results about survivorship bias in previous studies by showing that the two major hedge fund databases contain different amounts of dissolved funds.
Empirical results show that poor performance is the main reason for a fund's disappearance.
Furthermore, I find that there are significant differences in fund returns, inception date, net assets value, incentive fee, management fee, and investment styles for the 465 common funds covered by both databases. Mismatching between reported returns and the percentage changes in NAVs can partially explain the differences in returns. Due to the general lack of data on fund performance in practice, our emphasis is on small sample analysis where possible. We illustrate our results empirically using data on 15 U.S.-based emerging markets investment funds.