Advanced Search
MyIDEAS: Login

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)

Contents:

Author Info

  • Evan Gilbert

    () (Department of Economics, University of Stellenbosch)

  • Dave Strugnell

    () (Department of Actuarial Sciences, University of Cape Town)

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

If you experience problems downloading a file, check if you have the proper application to view it first. 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 Function: First version, 2008
Download Restriction: no

Bibliographic Info

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

as in new window
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

Related research

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

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:sza:wpaper:wpapers67

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Melt van Schoor).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.