Survivorship bias

Definition:

Usually pertaining to fund manager or individual investor performance. Suppose we examined the performance over the last ten years of a group of managers that exist today. This performance is biased upwards because we are only considering those that survived for 10 years. That is, some dropped out because of poor performance. Hence, in evaluating performance, one has to be careful to include both the current and the managers that dropped out of the sample due to poor performance.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Subrogation

An insurance process whereby a company that has paid out to a policyholder for a loss incurred recovers the amount of the loss from the party that is legally liable.

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