Mutual Funds: Your Money, Your Choice... Take Control Now and Build Wealth Wisely

Chapter 17. Determine How You Will Know Who the Winner Is

Many academic studies about mutual fund performance have been done. The “early” studies (e.g., those done in the 1970s) found very little evidence of consistency in performance. In other words, historical results were of little value in explaining future results. Some later studies, done in the 1990s by well-respected researchers, found some evidence of persistence in performance.

Part of the problem with the performance issue in general is determining accurately how well all mutual funds have actually done over time. There are many comparisons made on a regular basis, yet many of these are fundamentally flawed.

A major flaw in most performance comparisons is survivorship bias. This refers ...