Survivorship Bias Risk


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.

BREAKING DOWN '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.

  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. Average Annual Return - AAR

    A percentage figure used when reporting the historical return, ...
  5. Mutual Fund

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

    The person(s) resposible for implementing a fund's investing ...
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. Professionals

    A Day in the Life of a Hedge Fund Manager

    Learn what a typical early morning to late evening workday for a hedge fund manager consists of and looks like from beginning to end.
  9. Mutual Funds & ETFs

    American Funds' Top Funds for Retirement

    Planning for retirement in this economic and investment environment is far from easy. American Funds might offer an answer.
  10. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  1. Can hedge funds trade penny stocks?

    Hedge funds can trade penny stocks. In fact, hedge funds can trade in just about any type of security, including medium- ... Read Full Answer >>
  2. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
  3. Are hedge funds regulated by FINRA?

    Alternative investment vehicles such as hedge funds offer investors a wider range of possibilities due to certain exceptions ... Read Full Answer >>
  4. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  5. Does OptionsHouse have mutual funds?

    OptionsHouse has access to some mutual funds, but it depends on the fund in which the investor is looking to buy shares. ... Read Full Answer >>
  6. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center