The Fix is In: Properly Backing Out Backfill Bias

Hedge fund researchers have long known about backfill bias, typically correcting for it by truncating a fixed number of returns from the beginning of each fund’s return series. However, we document that this practice decreases the percentage of backfilled returns by only 25%. Thus, empirical conclusions using this correction are still biased by backfill, including average performance and performance’s relation with size, age, and other fund characteristics. Unfortunately, many databases do not include the listing dates needed to properly control for this bias (now including TASS.) We therefore propose a novel method to infer listing dates when not available.