This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Does survivorship bias really matter? An empirical investigation into its effects on the mean reversion of share returns on the JSE Securities Exchange (1984-2006)

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Evan Gilbert () (Department of Economics, University of Stellenbosch)
Dave Strugnell () (Department of Actuarial Sciences, University of Cape Town)

Additional information is available for the following registered author(s):

Abstract

This paper tests for the impact of survivorship bias by building on the work of Cubbin, Eidne, Firer and Gilbert (2006), and Bailey and Gilbert (2007). The former paper confirmed the existence of mean reversion on the JSE Securities Exchange, because portfolios of shares with high Price to Earnings (P/E) ratios (being those which had tended to outperform recently) underperformed significantly over five years against portfolios of shares with low P/E ratios. The latter paper developed the economic validity of this conclusion by applying liquidity constraints to portfolio formation. This tended to slightly dampen the observed effects, but confirmed the significant presence of mean reversion. In both cases, extensive efforts were made to include all delisted shares in the study to avoid the effects of survivorship bias. This paper updates both studies by extending the period for a further 21 months, and then quantifies the impact of survivorship bias by comparing the results against those of an equivalent study based on a data set of currently listed shares only. The results of our study confirm that the effects of survivorship bias are present and material. While patterns of mean reversion are detected on both data sets, the returns earned on portfolios selected from currently listed shares are significantly higher than the corresponding returns on portfolios selected from all shares. Survivorship bias is therefore confirmed to be a significant issue in such studies, which researchers should be careful to avoid; although it does not necessarily affect the conclusion of the patterns of mean reversion revealed in the earlier studies.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ekon.sun.ac.za/wpapers/2008/wp192008/wp-19-2008.pdf
File Format: application/pdf
File Function: First version, 2008
Download Restriction: no

Publisher Info
Paper provided by Stellenbosch University, Department of Economics in its series Working Papers with number 19/2008.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2008
Date of revision:
Handle: RePEc:sza:wpaper:wpapers67

Contact details of provider:
Postal: Private Bag X1, 7602 Matieland
Phone: 021-8082247
Fax: +27 (0)21-808 2409
Email:
Web page: http://www.ekon.sun.ac.za
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Melt van Schoor).

Related research
Keywords: Survivorship bias; mean reversion; P/E ratio;

Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

This paper has been announced in the following NEP Reports:

Statistics
Access and download statistics

Did you know? You can import bibliographic info in various formats into you bibliographic tool, or just into your word processor. See under "publisher info" on each abstract page.

This page was last updated on 2009-11-28.


This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.