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Rev Fin 1992; 5:553-580
© 1992 the Society for Financial Studies

Article

Survivorship bias in performance studies

SJ Brown1,z, W Goetzmann2, RG Ibbotson3 and SA Ross3
1 Department of Finance, Stern School of Business, New York University, 44 W 4th Street, New York, NY 10012-1126, USA
2 Columbia University, USA
3 Yale University, USA
z Corresponding author

Abstract

Recent evidence suggests that past mutual fund performance predicts future performance. We analyze the relationship between volatility and returns in a sample that is truncated by survivorship and show that this relationship gives rise to the appearance of predictability. We present some numerical examples to show that this effect can be strong enough to account for the strength of the evidence favoring return predictability.


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