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CFA Level I · CFA Level I Exam · Estimation and Hypothesis Testing

A researcher studies the long-run performance of equity funds using only funds that still exist today, excluding those that were closed or merged after poor results. The reported average return is most likely:

The average return is most likely biased upward by survivorship bias. Poorly performing funds that closed or merged are missing from the data, so the remaining sample contains mainly successful funds and overstates the typical performance of the whole fund population.

  1. ABiased upward because of survivorship biasCorrect
  2. BBiased downward because of look-ahead bias
  3. CUnbiased because only active funds are relevant

Explanation

Funds that closed typically performed poorly. Excluding them leaves only successful funds, which raises the measured average return. This is survivorship bias, not look-ahead bias.

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