Curriculum·R410 Copy Trading, Vaults, and Agentic Execution·about 32 min
Leaderboard forensics
By the end of this lesson you can
- →Name the three biases that inflate any self-reported performance record
- →Compute what the best result out of a large field looks like under pure luck
- →Reconstruct a return series rather than reading a headline number
- →State what a leaderboard can and cannot establish about the leader at the top of it
Senior · enrolled learners
This lesson opens with Malkiel and Saha on hedge fund databases, published 2005.
- What happened
- Burton Malkiel and Atanu Saha published Hedge Funds: Risk and Return in the Financial Analysts Journal in 2005, examining what happens to reported returns when funds report voluntarily. They found three effects. Backfill bias, where a fund joining a database may supply its past record and does so only when that record is good, inflated reported returns by roughly 5.7 to 7.3 percentage points a year depending on the period examined. Survivorship bias, where indices are computed from funds still operating, added about 4.4 percentage points a year. And the difference in performance between funds still alive and funds that had ceased averaged about 8.4 percentage points a year. Their conclusion was that hedge funds are riskier and return less than is commonly supposed.
- The decision point
- None of the individual funds misreported anything. Each number in each database was a true statement about a real fund, and the aggregate was inflated by roughly a tenth of the return per year purely through who chose to report and who remained to be counted. A copy-trading leaderboard is the same construction with a shorter history, a larger field and no requirement to report anything at all.
What you will be able to answer
- →What are the three biases?
- →How large were they?
- →What does pure luck produce at the top of a large field?
- →What does a leaderboard establish?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.tandfonline.com/doi/abs/10.2469/faj.v61.n6.2775
- https://www.atlantafed.org/-/media/documents/news/conferences/2006/06fmc/06fmcMalkiel.pdf
- https://www.aei.org/wp-content/uploads/2011/10/20060515_SahaNPSTFinal.pdf
- https://faculty.haas.berkeley.edu/odean/papers/day%20traders/The%20Cross-Section%20of%20Speculator%20Skill.pdf
Confidence high·Volatility low·Reviewed 2026-08-07·Owner unassigned
Contested
Estimates of backfill bias in the Malkiel and Saha work are quoted as about 5.74 percentage points for 1994 to 2003 and about 7.3 points for 1995 to 2003 depending on the source and window, and later research has produced both larger and smaller figures with different methods. The range is stated rather than a point estimate and the argument does not depend on which end is used.
The order statistic in part two assumes independent normally distributed annual returns, which real leader returns are not, being correlated with each other and fat-tailed. Correlation reduces the effective field size and fat tails increase the expected extreme, so the two corrections work in opposite directions. The conclusion, that a large field produces a spectacular leader under pure luck, is robust to both.
S205-04 owns tracing a specific leader's method. R408-06 owns the Taiwan evidence that persistent skill exists. This lesson owns the statistics of the ranking itself. Keep the splits.