This so-called "survivorship bias" skews returns simply because more losers are eliminated from the sample.
The trouble with survivorship bias and demagoguery is that they distract us from the essentials of our discussion.
Such a calculation is polluted by what's called survivorship bias--the ability of fund vendors to make bad funds disappear.
One caveat: The data have an inherent positive survivorship bias, as some companies captured in earlier years may have failed along the way.
There is a survivorship bias in both fund management and trading.
Nagel has, I think, been led astray by a big survivorship bias: the evolutionary lineage that led to us always found a viable mutation, ergo one must, it seems, always be available.
The SPIVA Scorecard provides performance comparisons corrected for survivorship bias, equal- and asset-weighted peer averages and measures of style consistency for actively managed U.S. equity, international equity and fixed income mutual funds.
Survivorship bias is most likely to pump up trailing returns "in the smaller, quirkier, more volatile categories, " where a lot of funds "wash out, " says Russel Kinnel, director of mutual-fund research at Morningstar.
Returns are likely to be overstated given that poor performers will drop out of the index (so-called survivorship bias) and that only funds that are initially successful will agree to report their numbers.
ECONOMIST: Despite mixed results, hedge funds earn a little respect
Historic return data shows that 2 out of 3 actively managed mutual funds underperform their benchmarks over a 5 year period when adjusted for survivorship bias, and that both individuals and professionals lose more ground when they try to predict markets by changing their asset allocation.
All these have a survivorship bias: investments mentioned at dinner parties, stocks charted in Value Line, entrepreneurs featured in FORBES, stock market histories (does your data set include the --100% compound annual return on Russia over the past century?), available hedge fund performance numbers and every mutual fund ad.
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