A database of hedge fund returns is constructed as follows. The first year of the database is 1994. All funds existing as of the end of 1994 that were
willing to report their verified returns for that year are included in that year. The database was extended by asking the funds for verified returns
before1994. Subsequently funds are added as they are willing to report verified returns to the database. If a fund stops reporting returns its returns
are deleted from the database but the database has an agreement with funds that they will keep reporting verified returns even if they stop being open to
new investors. Consider the four following statements:
I. The database suffers from backfilling bias.
II. The database suffers from survivorship bias.
III. The database suffers from an errors-in-variables bias.
IV. The equally-weighted annual return average of fund returns will underestimate the performance one would expect from a hedge fund.
Which one of the following is correct?
A. All the above statements are correct.
B. Statements I and II are correct.
C. Statements I II and III are correct.
D. Statements II and IV are correct.