Survivorship bias and attrition effects in measures of performance persistence
Year: 1999
Type: article
Abstract: We simulate standard tests of performance persistence using alternative return-generating processes, survival criteria, and test methodologies. When survival depends on performance over several periods, survivorship bias induces spurious reversals, despite the presence of cross-sectional heteroskedasticity in performance. Look-ahead biased methodologies and missing final returns typical of U.S. mutual fund datasets can also materially affect persistence measures. Our results reinforce previous findings that U.S. mutual fund performance is truly persistent. When fund performance is truly persistent, fund attrition affects persistence measures, even when the sample includes all nonsurvivor returns. We also examine the specification and power of the various persistence tests.
Source: Journal of Financial Economics
Authors: Jennifer N. Carpenter, Anthony W. Lynch
Institution: New York University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $4,740
OpenAlex ID: W2106513880