September 12, 2000
Mark M. Carhart , Jennifer N. Carpenter, Anthony W. Lynch and David K. Musto
ABSTRACT
This paper offers a comprehensive study of survivorship issues, in the context of mutual fund research, using the
mutual fund data set of Carhart (1997). We find that funds in our sample disappear primarily because of multi-year
poor performance. Then we demonstrate analytically that this survival rule typically causes the survivor bias in
average performance to increase in the length of the sample period, though it is possible to construct counterexamples.
In the data, we find a strong positive relation between the survivor bias in average performance and sample period
length. The bias is economically small at 17 basis points per annum for one-year samples, but a significantly larger
one percent per annum for samples longer than fifteen years. We also find evidence of performance persistence in
our sample and, consistent with the presence of a multi-period survival rule, we find that the persistence is weakened
by survivorship bias. Finally, we explain how the relation between performance and fund characteristics can be
affected by the use of a survivor-only sample and show that the magnitudes of the biases in the slope coefficients
are large for fund size, expenses, turnover and load fees in our sample. Because survivorship issues are relevant
for many data sets used in finance, the analysis in this paper has potential applications in areas of financial
economics beyond just mutual fund research.
Subject: Investments, Others: Mutual fund performance, Suvivorship bias
Classification: Empirical, Theoretical
Mark M. Carhart
Institution: Asset Management, Goldman Sachs
Email: mark.carhart@gs.com
Telephone: (212) 357-5993
Jennifer N. Carpenter
Institution: Stern School of Business, New York University
Email: jcarpen0@stern.nyu.edu
Telephone: (212) 998-0352
Anthony W. Lynch
Institution: Stern School of Business, New York University
Email: alynch@stern.nyu.edu
Telephone: (212) 998-0350
David K. Musto
Institution: Wharton School, University of Pennsylvania
Email: musto@wharton.upenn.edu
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