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Rev Fin 2002; 15:1439-1463
© 2002 the Society for Financial Studies

Mutual Fund Survivorship

Mark M. Carhart
Goldman Sachs Asset Management

Jennifer N. Carpenter
New York University

Anthony W. Lynch
New York University

David K. Musto
University of Pennsylvania

Address correspondence and reprint requests to Jennifer N. Carpenter, New York University, 44 West Fourth St., Suite 9-190, New York, NY 10012, or e-mail: jcarpen0{at}stern.nyu.edu.

Abstract

This article provides a comprehensive study of survivorship issues using the mutual fund data of Carhart (1997). We demonstrate theoretically that when survival depends on multiperiod performance, the survivorship bias in average performance typically increases with the sample length. This is empirically relevant because evidence suggests a multiyear survival rule for U.S. mutual funds. In the data we find the annual bias increases from 0.07% for 1-year samples to 1% for samples longer than 15 years. We find that survivor conditioning weakens evidence of performance persistence. Finally, we explain how survivor conditioning affects the relation between performance and fund characteristics.


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