When testing mutual fund performance over time one must be careful of ___________,which means that a certain percentage of poorer performing funds fail over time which makes the performance of remaining funds seem more consistent over time.
A) survivorship bias
B) lucky event bias
C) magnitude bias
D) mean reversion bias

Question

Quizplus · Accepted Answer

Survivorship bias refers to the phenomenon of removing certain funds from performance data that have underperformed over time and no longer exist or have been merged with other funds. This creates a selection bias in the remaining data, making it seem like the funds have performed consistently well over time. Thus, one must be careful of survivorship bias when testing mutual fund performance over time.

When Testing Mutual Fund Performance Over Time One Must Be