Instant History Bias

AAA

DEFINITION of 'Instant History Bias'

An inaccuracy in the appearance of investment fund returns that occurs when only new, successful funds report their numbers while new, unsuccessful funds close and their poor returns aren't factored into an investment manager's or investment type's overall performance record.


Instant history bias, which especially occurs in hedge funds, is also called "backfill bias" because hedge fund managers may choose not report fund performance to a database from the fund's inception, but instead choose to "backfill" the database later when they have established a track record of success with a fund.

INVESTOPEDIA EXPLAINS 'Instant History Bias'

Other types of bias that exist in hedge fund reporting include survivorship bias (the inaccurate appearance of high returns because poorly performing funds are closed and their returns are not counted) and non-reporting bias (the inaccurate reporting of overall returns because some funds, probably poorly performing ones, decline to report their returns).





These types of bias may make hedge funds appear to be a better-performing asset type than they really are, because hedge fund managers can choose whether to report the performance of their funds.

RELATED TERMS
  1. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  2. Survivorship Bias Risk

    The possibility that an investor will make a misguided investment ...
  3. Hedge Fund Manager

    The individual who oversees and makes decisions about the investments ...
  4. Bias

    Biases are human tendencies that lead us to follow a particular ...
  5. Reverse Survivorship Bias

    The tendency for low performers to remain in the game, while ...
  6. Average Annual Return - AAR

    A percentage figure used when reporting the historical return, ...
RELATED FAQS
  1. How much of the asset management industry has moved from traditional managers to ...

    While the exact numbers are difficult to calculate due to variations in measurement and the overall growth of the asset management ... Read Full Answer >>
  2. What's the difference between a collateralized debt obligation (CDO) and a collateralized ...

    A collateralized mortgage obligation, or CMO, is a type of mortgage-backed security (MBS) issued by an lender that handles ... Read Full Answer >>
  3. What's the difference between the hurdle rate and the high water mark?

    Hurdle rate and high water mark are two types of benchmarks that hedge funds can set as requirements for collecting incentive ... Read Full Answer >>
  4. How did the financial crisis affect the banking sector?

    Over the short term, the financial crisis affected the banking sector by causing banks to lose money on mortgage defaults, ... Read Full Answer >>
  5. What does standard deviation measure in a portfolio?

    Standard deviation is a mathematical measurement of average variance and features prominently in statistics, economics, accounting ... Read Full Answer >>
  6. How do hedge funds use short selling?

    Hedge funds use short selling to profit from stocks whose prices they believe are going to decline in value. A hedge is a ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Published Mutual Fund Returns Not Always What They Appear

    Survivorship bias erases substandard performers, distorting overall mutual fund returns.
  2. Economics

    The ABCs Of Stock Indexes

    Indexes can track market trends, but they're not always reliable. Can you trust them?
  3. Investing Basics

    What is a Foreign Institutional Investor?

    A foreign institutional investor (FII) is a person or a group of people operating or registered in a country that’s not their domicile.
  4. Mutual Funds & ETFs

    How To Start a Hedge Fund In the United States

    A general overview of how to start a hedge fund firm in the United States, including complying with state and federal regulations.
  5. Mutual Funds & ETFs

    How To Start A Hedge Fund In The UK

    Starting a new hedge fund in the United Kingdom is more complex than in the United States. We discuss UK laws and regulations for starting a new hedge fund.
  6. Mutual Funds & ETFs

    Want To Work At a Hedge Fund? These Are The Top Entry-Level Jobs

    Lucrative salary, high perks, and best quantitative brains at work - Here are the common entry level positions for those aspiring for a career in hedge fund industry.
  7. Mutual Funds & ETFs

    How To Mimic A Hedge Fund Strategy

    Hedge fund replication strategies are beneficial to individual investors who would like hedge fund-like returns without the drawbacks.
  8. Mutual Funds & ETFs

    How To Start A Hedge Fund In Canada

    Would-be hedge fund managers in Canada need to understand the laws and regulations that must be followed in order to start a fund in the country.
  9. Mutual Funds & ETFs

    These 4 Precious Metals ETFs Help Combat Inflation

    A look at 4 precious metal ETFs to combat inflation when it hits.
  10. Investing

    Hedged ETFs That Help You Cushion Currency Impact

    If you’re an investor holding non-U.S. assets, the returns on your investments will be affected when you translate your investment from its local currency

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center