An Empirical Study Of The Effects Of Survivorship Bias On Private Fund

Survivorship bias effect is the phenomenon that the results will be inaccurate,if the sample choice has neglected the vanishing fund.The earliest study on the survivorship bias was the "aircraft protection" case during World War II,and later developed into the investment field gradually.When researching Fund performance,the results would be biased,if only considering the survival fund and ignoring the disappearance of the fund.This deviation is usually called survival bias.Survival bias will have an impact on Performance and Performance persistence Research.The supervision of China's Securities Regulatory Commission and Securities and Exchange Commission on private equity is relaxed,and the information disclosure of Private equity fund is not complete.Therefore,the private equity fund data from existing database is not complete,and the data is mainly from survival fund.The entire private equity fund is composed of the survival private equity funds and the disappearance private equity fund,the lack of the disappearance private equity fund would result in biased estimates.When considering survivorship bias,the results would become unbiased estimates and could provide investors with more accurate reference,reduce investor risk.Therefore,the research of survivorship bias has important significance theoretically and practically.This dissertation focuses on the following four questions.First,investigate the performance of private equity funds.Second,estimate the survivorship bias size of private equity fund.Third,examine the survivorship bias effect,the survivorship bias effect of continuous performance and performance of private equity funds.Fourth,analyze the reasons for the disappearance of private funds.The main achievements of this paper are as follows:1.This dissertation calculates the survivorship bias size of private equity funds by Fama-French five factor model.The results show that the size of survivorship bias is 0.53% per month.It means the performance of private equity funds will be overestimated if ignoring the disappearance and the deviation is 0.53% per month.2.This dissertation calculated the risk and return of survival fund and disappear fund respectively by Treynor Ratio,Sharpe Ratio,Jensen alpha,Information Ratio and five-factor alpha,analyzed and compared the results.The results show that,no single fund or the fund as a whole,the absolute return and risk adjusted return of private equity funds are lower than the survival funds.Therefore,the survivorship bias effect would appear if ignoring the vanishing fund.3.This dissertation examined the performance persistence of private equity funds by cross section regression method,contingency tables method and momentum method.Based on that,this dissertation built a method for the performance of the fund's overall performance based on five factor model.The results show that there is no persistent on the performance of private funds.When narrowing the scope of investigation,there is a certain degree of persistence.The persistence of performance would be exaggerated because of survivorship bias.In addition,private equity preference theme stocks and short-term speculation,the investment behavior is not conducive to the sustainable of the stock market and the sustainable development itself.4.This dissertation analysis the reasons for the disappearance of private equity funds qualitatively.The results show that small scale and the excessive investment in financial derivatives would lead to the investment losses and poor performance is the main reason for the disappearance of private equity funds.