CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

When a new hedge fund is added to a hedge fund index, the fund's historical performance is then included in the index's historical performance. The potential problem with this practice is:

A. Hedge funds in index are subject to turnover.
B. Survivor and backfill biases.
C. Autocorrelation that results in artificially low standard deviations.
D. Limited track record.
Correct Answer: B

Only funds that survived will be reported and included in the index.

User Contributed Comments 2

User Comment
pjb64 the same can be said of mutual funds, I don't know why CFA has it out for hedge funds.
Fabulous1 Because this is the hedge fund chapter. It was also mentioned for mutual funds in a previous one.
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