Sample Selection Bias

AAA

DEFINITION of 'Sample Selection Bias'

A type of bias caused by choosing non-random data for statistical analysis. The bias exists due to a flaw in the sample selection process, where a subset of the data is systematically excluded due to a particular attribute. The exclusion of the subset can influence the statistical significance of the test, or produce distorted results.

INVESTOPEDIA EXPLAINS 'Sample Selection Bias'

Survivorship bias is a common type of sample selection bias. For example, when back-testing an investment strategy on a large group of stocks, it may be convenient to look for securities that have data for the entire sample period. If we were going to test the strategy against 15 years worth of stock data, we might be inclined to look for stocks that have complete information for the entire 15-year period. However, eliminating a stock that stopped trading, or shortly left the market, would input a bias in our data sample. Since we are only including stocks that lasted the 15-year period, our final results would be flawed, as these performed well enough to survive the market.

RELATED TERMS
  1. Population

    The entire pool from which a statistical sample is drawn. The ...
  2. James J. Heckman

    An American economist who won the 2000 Nobel Memorial Prize in ...
  3. Reverse Survivorship Bias

    The tendency for low performers to remain in the game, while ...
  4. Sampling Distribution

    A probability distribution of a statistic obtained through a ...
  5. Non-Sampling Error

    A statistical error caused by human error to which a specific ...
  6. Sampling Error

    A statistical error to which an analyst exposes a model simply ...
Related Articles
  1. Markets

    Using Historical Volatility To Gauge Future Risk

    Use these calculations to uncover the risk involved in your investments.
  2. Bonds & Fixed Income

    Find The Highest Returns With The Sharpe Ratio

    Learn how to follow the efficient frontier to increase your chances of successful investing.
  3. Active Trading Fundamentals

    Bet Smarter With The Monte Carlo Simulation

    This technique can reduce uncertainty in estimating future outcomes.
  4. Options & Futures

    An Introduction To Value at Risk (VAR)

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  5. Active Trading Fundamentals

    How To Convert Value At Risk To Different Time Periods

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  6. Active Trading

    Modern Portfolio Theory: Why It's Still Hip

    See why investors today still follow this old set of principles that reduce risk and increase returns through diversification.
  7. Fundamental Analysis

    Monte Carlo Simulation With GBM

    Learn to predict future events through a series of random trials.
  8. Economics

    How A Limited Government Affects A Country's Finances

    Countries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?
  9. Personal Finance

    What is the average salary for an accountant?

    Learn about the average salaries of various accounting positions, and see the difference that an accounting degree makes in attaining higher wages.
  10. Fundamental Analysis

    Lognormal and Normal Distribution

    When and why do you use lognormal distribution or normal distribution for analyzing securities? Lognormal for stocks, normal for portfolio returns.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center