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. Look-Ahead Bias

    Bias created by the use of information or data in a study or ...
  6. Survivorship Bias

    The tendency for mutual funds with poor performance to be dropped ...
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. 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".
  5. 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".
  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

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  9. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  10. Investing

    How to Use Stratified Random Sampling

    Stratified random sampling is a technique best used with a sample population easily broken into distinct subgroups. Samples are then taken from each subgroup based on the ratio of the subgroup’s ...

You May Also Like

Hot Definitions
  1. Loan-To-Value Ratio - LTV Ratio

    A lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage.
  2. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  3. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  4. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  5. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  6. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
Trading Center