Mutual Fund Survivorship

67 Pages Posted: 19 Oct 2000

See all articles by Mark M. Carhart

Mark M. Carhart

Kepos Capital LP

Jennifer N. Carpenter

New York University (NYU) - Department of Finance

Anthony W. Lynch

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

David K. Musto

University of Pennsylvania - Finance Department

Multiple version iconThere are 4 versions of this paper

Date Written: September 12, 2000

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.

JEL Classification: G23, C10

Suggested Citation

Carhart, Mark M. and Carpenter, Jennifer N. and Lynch, Anthony W. and Musto, David K., Mutual Fund Survivorship (September 12, 2000). Available at SSRN: https://ssrn.com/abstract=238713 or http://dx.doi.org/10.2139/ssrn.238713

Mark M. Carhart (Contact Author)

Kepos Capital LP ( email )

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Jennifer N. Carpenter

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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New York, NY 10012-1126
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212-998-0352 (Phone)
212-995-4233 (Fax)

Anthony W. Lynch

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
(212) 998-0350 (Phone)
(212) 995-4233 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David K. Musto

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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