- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 5. Sampling and Estimation
- Subject 7. Data Snooping Bias, Sample Selection Bias, Look-Ahead Bias, and Time-Period Bias
CFA Practice Question
One of the effects of survivorship bias is ______.
B. that it allows results, which are time-specific, to be generalized
C. that companies with high returns are under-represented in samples drawn from the population
A. the conclusion that average return is inversely related to price-to-book ratio
B. that it allows results, which are time-specific, to be generalized
C. that companies with high returns are under-represented in samples drawn from the population
Correct Answer: A
According to Kothari, Shanken, and Sloan, survivorship bias induces researchers to conclude that average return is inversely related to price-to-book ratio.
User Contributed Comments 2
| User | Comment |
|---|---|
| StephanieG | Not sure that this makes sense to me. Help anyone? |
| mtsimone | Ooh, a Fama/French slam from Kothari, Shanken, and Sloan. Hadn't read this one. Fama/French, in the early 90s, that ER on value stocks (i.e., stocks with low price/book) is higher than the ER on growth stocks, (i.e., high price/book). Seems arcane, I know, but the bottom line is the intuition that buying low priced stocks with solid earnings, a lot of them in a portfolio, increases the odds of a higher ER than buying the same number of growth stocks. It makes sense in general, though not for any particular stock. We all look for bargains; we just have to be sure that the bargains aren't trash. These ideas have been honed more carefully in recent years. |