Backfill bias

Upward bias from adding a fund's earlier returns to a database when it starts reporting. Managers tend to begin reporting after good results, so the history added is mostly flattering.

Where you will meet it

Backfill bias appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain why hedge fund index returns as reported can be biased
  CFA Level I · Alternative Investments

  “Backfill bias occurs when a fund joins a database and its historical record is added retrospectively — a manager does not volunteer a bad history.”

• Set out the difficulties that arise when choosing benchmarks for alternative investments
  CFA Level III · Performance Measurement

  “Peer-group indices are not investable and suffer from survivorship and backfill bias, with strategies too varied to compare.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with B · Glossary