In an earlier post we addressed the question as to whether there is any bias in the delay between a fund's month end and the performance of that month. Our cynical theory is that managers with good news to report report it early and those with bad news to report report it late.

Since September, 2009, I've been sampling the reported monthly return of the BarclayHedge Hedge Fund Index. This is a simple average of the monthly returns of all funds that have reported to the group at that time. From time-to-time during each month I've sampled the main index's reported average monthly rate of return and the number of funds that have reported. You can find this data on my blog at the page Return Index Accumulation Report. The chart below is an analysis of the error, meaning the difference between the average monthly rate of return for the entire universe reporting on the sample date and that value finally reported at the end of the month. To gauge the average scale of the bias we fit a simple model by least squares:

Here B is the bias, or the average error between the sampled monthly rate of return and the final monthly rate of return; S is the scale we seek to estimate; and, p is the proportion of funds reported (i.e. the number in the sample divided by the final number of funds reporting in that month). Our estimate of the average scale of the error is (51 ± 8) bp/month.