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, making 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 occurs when only the better-performing mutual funds are analyzed, while poorly performing funds are removed over time, making the performance of the remaining funds look better than it actually is. This bias can lead to inaccurate assessments of mutual fund performance over time.

When Testing Mutual Fund Performance Over Time, One Must Be