CFA Practice Question

There are 57 practice questions for this study session.

CFA Practice Question

Survivorship bias tends ______ historical estimates of the equity risk premium.

A. to inflate.
B. to deflate.
C. not to affect.
Correct Answer: A

User Contributed Comments 4

User Comment
kodali Doesn't the survivor bias underestimate the risk premium
prabhur08 The companies that survive over the long term have on average outperformed the market (the reason why they have survived!). The fact that the under performers or the companies that failed and no longer exist are not included in the average, makes the average look even better. Thus the survivorship bias tends to inflate the average equity returns.
gregsob2 good explanation prabhur
thebkr777 thanks prabhur08
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