Definition
Survivorship bias occurs when performance analysis only includes funds that still exist, ignoring those that merged or closed (often due to poor performance). This overstates historical returns because failed funds are excluded. Studies show survivorship bias can inflate mutual fund returns by 1% or more annually.
Example
A database showing 10-year mutual fund returns excludes the 30% of funds that closed - average returns appear higher than reality.
FAQ
What is Survivorship Bias?
Overestimating returns by only including funds that survived the period.
Why is Survivorship Bias important?
Survivorship Bias helps investors evaluate portfolio management and make more informed decisions.