An analyst compared the performance of a hedge fund index with the performance of a major stock index over the past eight years. She noted that the hedge fund index (created from a database) had a higher average return, lower standard deviation, and higher Sharpe ratio than the stock index. All the successful funds that have been in the hedge fund database continued to accept new money over the eight-year period. Are the average return and the Sharpe ratio, respectively, for the hedge fund index most likely overstated or understated?

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a. Average return for the hedge fund index Overstated b. Overstated Understated Sharpe ratio for the hedge fund index Overstated Understated Overstated