Exposing Survivorship Bias in Mutual Fund Data

We revisit survivorship bias within domestic equity mutual funds from the middle of 1998 to the middle of 2004. Using Morningstar Principia and tracking both disappearing funds and name changes, we report a statistically significant performance difference between the complete sample and the survivorship-biased sample. We correlate this potential for a disproportional weighting of better performing funds to market conditions and show that changes in stock market indices and interest rates have a bearing on the level of survivorship bias. We also analyze the time series properties of survivorship and demonstrate that mutual fund survivorship bias follows a mean-reverting process. [PUBLICATION ABSTRACT]