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Survivorship Bias

Reviewed by Vineeth | Updated on Sep 30, 2020

Catalogue

Introduction

Survivorship bias is a tendency of looking at the performance of securities as a comprehensive sample with no consideration of securities that have gone down. It can result in overestimating historical performance and other attributes of a fund or market index.

Understanding Survivorship Bias

Survivorship bias is the most common singularity which leads to making the existing securities much transparent in the market, and hence it is considered as a representative sample.

The bias can occur when investment manager closes many funds in the investment market for various reasons, leaving only a few already existing funds in the frontline of the investing market.

Factors to Consider

  1. Survivorship bias occurs when only the winners are considered, and the losers are not.

  2. It can occur when evaluating mutual fund performance or market index performance.

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