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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26703
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| Title: | MUTUAL FUND SURVIVORSHIP |
| Authors: | Carhart, Mark M.
Carpenter, Jennifer N.
Lynch, Anthony W.
Musto, David K. |
| Issue Date: | 2000 |
| Series/Report no.: | FIN-00-038 |
| Abstract: | This paper offers a comprehensive study of survivorship issues, in the
context of mutual fund research, using the mutual fund data set of
Carhart (1997). We find that funds in our sample disappear primarily
because of multi-year poor performance. Then we demonstrate analytically
that this survival rule typically causes the survivor bias in average
performance to increase in the length of the sample period, though it is
possible to construct counterexamples. In the data, we find a strong
positive relation between the survivor bias in average performance and
sample period length. The bias is economically small at 17 basis points
per annum for one-year samples, but a significantly larger one percent
per annum for samples longer than fifteen years. We also find evidence
of performance persistence in our sample and, consistent with the
presence of a multi-period survival rule, we find that the persistence
is weakened by survivorship bias. Finally, we explain how the relation
between performance and fund characteristics can be affected by the use
of a survivor-only sample and show that the magnitudes of the biases in
the slope coefficients are large for fund size, expenses, turnover and
load fees in our sample. Because survivorship issues are relevant for
many data sets used in finance, the analysis in this paper has potential
applications in areas of financial economics beyond just mutual fund research. |
| URI: | http://hdl.handle.net/2451/26703 |
| Appears in Collections: | Finance Working Papers
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