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Answer: Survivorship bias.
## Explanation This scenario demonstrates **Survivorship bias**, which occurs when: - Only successful funds continue to report performance data - Poorly performing funds stop reporting or cease operations - The remaining sample overstates the true performance of the asset class **Key points**: - The fund reported for 10 years but stopped after a big loss - This creates a biased sample where only surviving (successful) funds remain in databases - Survivorship bias leads to overestimation of historical returns in performance studies **Other options**: - **Infrequent trading bias**: Affects pricing of thinly traded assets - **Unsmoothing returns**: Deals with autocorrelation in reported returns - **Sample selection bias**: Broader term that includes survivorship bias as a specific type The specific pattern of a fund disappearing after poor performance is classic survivorship bias.
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You are doing analysis on hedge funds investing, you are curious that one hedge fund who reported returns each year for the last 10 years has stopped reporting. Some of your friends told you that the fund has suffered a big loss this year. This reflects:
A
Infrequent trading bias.
B
Unsmoothing returns.
C
Sample selection bias.
D
Survivorship bias.
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