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Survivorship Bias and Mutual Fund Performance

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Author Info
Elton, Edwin J
Gruber, Martin J
Blake, Christopher R
Abstract

Mutual fund attrition can create problems for a researcher because funds that disappear tend to do so due to poor performance. In this article we estimate the size of the bias by tracking all funds that existed at the end of 1976. When a fund merges we calculate the return, taking into account the merger terms. This allows a precise estimate of survivorship bias. In addition, we examine characteristics of both mutual funds that merge and their partner funds. Estimates of survivorship bias over different horizons and using different models to evaluate performance are provided. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 9 (1996)
Issue (Month): 4 ()
Pages: 1097-1120
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Handle: RePEc:oup:rfinst:v:9:y:1996:i:4:p:1097-1120

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  1. Diane Del Guercio & Paula A. Tkac, 2000. "The determinants of the flow of funds of managed portfolios: mutual funds versus pension funds," Working Paper 2000-21, Federal Reserve Bank of Atlanta. [Downloadable!]
  2. Ping Hu & Jayant Kale & Ajay Subramanian, 2003. "Compensation, Career Concerns, and Relative Risk Choices by Mutual Fund Managers: Theory and Evidence," Levine's Bibliography 666156000000000349, UCLA Department of Economics. [Downloadable!]
  3. Keith Cuthbertson & Dirk Nitzsche & Niall O' Sullivan, 2004. "UK Mutual Fund Performance: Genuine Stock-Picking Ability or Luck," Money Macro and Finance (MMF) Research Group Conference 2004 55, Money Macro and Finance Research Group. [Downloadable!]
  4. Heber Farnsworth & Wayne E. Ferson & David Jackson & Steven Todd, 2002. "Performance Evaluation with Stochastic Discount Factors," NBER Working Papers 8791, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Andre Santos & Joao Tusi & Newton Da Costa Jr & Sergio Da Silva, 2005. "Evaluating Brazilian Stock Mutual Funds with Stochastic Frontiers," Finance 0510030, EconWPA. [Downloadable!]
  6. Drew, Michael E. & Stanford, Jon D., 2001. "The Impact of Fund Attrition on Superannuation Returns," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 31(1), pages 25-32, March. [Downloadable!]
  7. Dahlquist, Magnus & Engström, Stefan & Söderlind, Paul, 1999. "Performance and Characteristics of Swedish Mutual Funds 1993-97," CEPR Discussion Papers 2166, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Tuomo Vuolteenaho, 2001. "What Drives Firm-Level Stock Returns?," NBER Working Papers 8240, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Fabrice Hervé, 2003. "La persistance de la performance des fonds de pension individuels britanniques:une étude empirique sur des fonds investis en actions et des fonds obligataires," Revue Finance Contrôle Stratégie, Editions Economica, vol. 6(3), pages 41-77, September. [Downloadable!]
  10. Bruce Costa & Gary Porter, 2003. "Mutual fund managers: Does longevity imply expertise?," Journal of Economics and Finance, Springer, vol. 27(2), pages 224-235, June. [Downloadable!] (restricted)
  11. Andre Santos & Joao Tusi & Newton Da Costa, Jr & Sergio Da Silva, 2005. "Evaluating Brazilian mutual funds with stochastic frontiers," Economics Bulletin, Economics Bulletin, vol. 13(2), pages 1-6. [Downloadable!]
  12. Gur Huberman & Zhenyu Wang, 2005. "Arbitrage pricing theory," Staff Reports 216, Federal Reserve Bank of New York. [Downloadable!]
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