Survivorship Bias and Mutual Fund Performance: Relevance, Significance, and Methodical Differences

This is the first paper systematically calculating, testing and explaining different definitions of the survivorship bias in fund performance. We document that the survival-performance-relation is stronger for small funds and we find significant under-performance of non-survivors but no significant out-performance of new funds. Survivorship bias is still a problem as well in other fields of research, e.g., in countries where survivorship bias-free data is not available and because certain methods require truncated data. This paper provides guidance on how to deal with and reduce survivorship bias in empirical studies. Copyright 2010, Oxford University Press.