Fund liquidation, self-selection and look-ahead bias in the hedge ...

0.732 0.374 emerging markets −0.068 0.133
r(−4)
−0.130 0.326 equity market neutral 0.023 0.148
r(−5)
4: Estimation results self-selection model, including net asset value
Table
19721 fund/period observations.
(size);
the results in Tables 3 and 4 indicate that the impact of historical
Overall,
is somewhat stronger for the liquidation decision than for the self-
returns
decision. The impact of size (ln(NAV)) is significantly positive, i.e.
selection
funds have a higher probability to liquidate or self-select than larger
smaller
(ceteris paribus).
funds
results for the self-selection model are clearly at odds with the idea
The
good performing funds are more likely to stop reporting because they
that
longer wish to attract new investors. Also, it does not appear to be the
no
that large funds, which may suffer most from decreasing returns to scale
case
their investment strategies, are more likely to voluntary stop reporting be-
of
managers are unwilling to attract new money. Total risk, as measured
cause
the standard deviation over the past six quarters, significantly affects
by
liquidation and self-selection decision positively, implying that high risk
the
funds have a higher probability to survive. This seems a counterintu-
hedge
result, and apparently contradicts the findings of Brown, Goetzmann
itive
Park (2001) who find that high risk funds have a higher probability to
and
However, our results suggest that high risk funds experience a
liquidate.
lower liquidation and self-selection probability, given the return
somewhat
and fund size. Accordingly, they indicate that high risk funds are
history
to have more extreme negative returns than low risk funds before
allowed
Parameters Estimate Std.error Parameters Estimate Std. Error
intercept 2.915 1.163 offshore 0.093 0.076
r(−1) 1.393 0.357 Incentive Fees −0.013 0.005
r(−2) 1.289 0.366 Mng. Fees −0.035 0.036
r(−3) 0.445 0.340 underwater 0.083 0.116
r(−6) 0.657 0.389 event driven 0.118 0.150
ln(NAV) 0.093 0.023 fixed income arbitrage 0.019 0.366
StDev 1.414 0.622 global macro 0.202 0.357
ln(Age) −0.719 0.591 long/short equity −0.148 0.108
ln(Age) 2 0.102 0.078 managed futures 0.058 0.111
Loglikelihood: −658.876 Chi-squared test: 135.78 (DF =42)
pseudoR 2 : 0.093 (p =0.000)
they decide to liquidate or self-select (see Baquero, ter Horst and Verbeek,
12