Question

When testing mutual fund performance over time, one must be careful of ___________, which means that a certain percentage of poorer-performing funds fail over time, making the performance of remaining funds seem more consistent over time.A. survivorship biasB. lucky event biasC. magnitude biasD. mean reversion bias

Answer 1

The correct answer is letter "A": survivorship bias.

Step-by-step explanation:

Survivorship bias or survivor bias, in finance, refers to the tendency of concentrating in past winner actions of a given asset -usually stocks, and dismissing the losers. When analyzing mutual funds under this approach, outdated or merged funds are not included, taking into consideration only the valid funds as the current performance for the whole chunk.