SURVIVORSHIP BIAS AND MUTUAL FUND PERFORMANCE

Mutual fund attrition can create problems for a researcher because fun ds that disappear tend to do so due to poor performance. In this artic le we estimate the size of the bias by tracking all funds that existed at the end of 1976. When a fund merges we calculate the return, takin g into account the merger terms. This allows a precise estimate of sur vivorship bias. In addition, we examine characteristics of both mutual funds that merge and their partner funds. Estimates of survivorship, bias over different horizons and using different models to evaluate pe rformance are provided.