The J-Shape of Performance Persistence Given Survivorship Bias

Posted: 18 Jul 2001  

Darryll Hendricks

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Jayendu Patel

Harvard University

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Abstract

Survivorship in a panel sample may depend on performance. The lack of randomness introduced challenges unbiased robust inference. If variance of performance over time is heterogeneous, spurious performance persistence may be observed in samples of survivors (Brown, Goetzmann, Ibbotson and Ross, 1992). However, we show that if the categorization of performance is sufficiently fine, the spurious persistence will be J-shaped. This pattern can be distinguished from the monotonic increasing pattern produced by true performance persistence (which has been observed with mutual funds). We confirm the emergence of the J-shape with simulations. A simple t-test applied to the quadratic coefficient in a regression enables us to distinguish between the J-shaped and monotonic patterns.

JEL Classification: C24, G14

Suggested Citation

Hendricks, Darryll and Patel, Jayendu and Zeckhauser, Richard J., The J-Shape of Performance Persistence Given Survivorship Bias. Available at SSRN: https://ssrn.com/abstract=5982

Darryll Hendricks

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS)

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Jayendu S. Patel (Contact Author)

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Richard J. Zeckhauser

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-496-3783 (Fax)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-384-9340 (Fax)

Paper statistics

Abstract Views
1,411