Survivorship Bias Risk

AAA

DEFINITION of 'Survivorship Bias Risk'

The possibility that an investor will make a misguided investment decision based on published investment fund return data that are unrealistically high because a company's poorly performing funds are closed and their returns are not included in the data. The danger is that the investor will not achieve the returns he anticipates because he has based his decision on incomplete and misleading information.

INVESTOPEDIA EXPLAINS 'Survivorship Bias Risk'

Survivorship bias risk is one of many reasons why investors should not rely too heavily on past returns to make their investment decisions. Other types of risk that investors might encounter are non-reporting bias risk (the danger that overall returns are misstated because some funds, likely the poorly performing ones, decline to report their returns) and instant history bias risk (the possibility that fund managers may choose to report performances to the public only when they have established a track record of success with a fund, while leaving out unsuccessful funds). In addition to past performance, investors should consider factors such as cost, risk, after-tax returns, volatility, relationship to benchmark performance and more.

RELATED TERMS
  1. Instant History Bias

    An inaccuracy in the appearance of investment fund returns that ...
  2. Reverse Survivorship Bias

    The tendency for low performers to remain in the game, while ...
  3. Window Dressing

    A strategy used by mutual fund and portfolio managers near the ...
  4. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  5. Fund Manager

    The person(s) resposible for implementing a fund's investing ...
  6. Average Annual Return - AAR

    A percentage figure used when reporting the historical return, ...
RELATED FAQS
  1. How do no-load funds typically perform relative to load funds?

    No-load mutual funds are pooled investments that do not carry an upfront sales charge when purchased or a deferred sales ... Read Full Answer >>
  2. What are the most popular mutual funds that invest primarily in the insurance sector?

    Under the purview of the financial services industry, the insurance sector is an attractive investment option for mutual ... Read Full Answer >>
  3. How should I use portfolio turnover to evaluate a mutual fund?

    The portfolio turnover percentage can be used to determine the extent to which a mutual fund turns over its stocks and assets ... Read Full Answer >>
  4. What are the risks involved in a banker's acceptance?

    College savings accounts are excellent ways to encourage saving for future college costs. Contact your investment professional ... Read Full Answer >>
  5. For what reasons are electronics stocks commonly purchased by a value investor?

    Administered by the Financial Industry Regulatory Authority (FINRA), the Series 6 exam – Investment Company and Variable ... Read Full Answer >>
  6. What is the difference between a modified duration and a Macaulay duration?

    Individuals have a handful of options for places to keep the funds they wish to keep guarded from the volatility and risk ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    4 Strategies For Managing A Portfolio Of Mutual Funds

    Discover some common strategies to devise a plan and maintain your holdings to reflect it.
  2. Investing Basics

    Introduction To Investment Diversification

    Reducing risk and increasing returns in your portfolio is all about finding the right balance.
  3. Mutual Funds & ETFs

    When To Sell A Mutual Fund

    Unhappy with your mutual fund's returns and thinking of investing elsewhere? Read this article first.
  4. Mutual Funds & ETFs

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
  5. Mutual Funds & ETFs

    5 Ways To Measure Mutual Fund Risk

    These statistical measurements highlight how to mitigate risk and increase rewards.
  6. Retirement

    Why It Pays To Be A Lazy Investor

    Be a couch potato! This passive, but diversified, investing strategy could be for you.
  7. Mutual Funds & ETFs

    Pick The Winners At The Mutual Fund Track!

    For both mutual funds and racehorses, there's no surefire way to pick a winner.
  8. Investing Basics

    Understanding Open-End Funds

    An open-end fund is a type of mutual fund that does not limit the amount of shares it issues, but issues as many shares as investors are willing to buy.
  9. Mutual Funds & ETFs

    Why You May Want To Be (And Stay) In Bonds

    Bonds are complicated, and it’s easy to feel intimidated or confused. Fortunately, you don’t need to be a numbers geek to be an informed investor.
  10. Professionals

    5 Signs That You Have a Lousy 401(k) Plan

    Knowing whether a 401(k) plan is good or not so good is important. This will help participants decide how much to invest and when to demand improvements.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center