Reverse Survivorship Bias

  • Author(s): JUHANI T. LINNAINMAA
  • Published: May 20, 2013
  • Pages: 789-813
  • DOI: 10.1111/jofi.12030

ABSTRACT

Mutual funds often disappear following poor performance. When this poor performance is partly attributable to negative idiosyncratic shocks, funds' estimated alphas understate their true alphas. This paper estimates a structural model to correct for this bias. Although most funds still have negative alphas, they are not nearly as low as those suggested by the fund‐by‐fund regressions. Approximately 12% of funds have net four‐factor model alphas greater than 2% per year. All studies that run fund‐by‐fund regressions to draw inferences about the prevalence of skill among mutual fund managers are subject to reverse survivorship bias.

Jump to menu

Main Navigation

Search the Site / Journal

Search Keywords

Search Tips

Members' Login

Credentials

Members' Options

Site Footer

View Mobile Version