Survivorship Bias in the Norwegian Mutual Fund Market: Impact, Causes and Methodical Differences

Abstract

This paper systematically accounts for the survivorship bias in the Norwegian mutual fund market and the impact of its existence. Survivorship bias has been researched in-depth in the US market and other large economies, however it remains a relatively unexplored topic in smaller economies such as Norway. Although research on survivorship bias can be found in the literature, most research addresses the survivorship bias as a sub-category. The paper contributes to previous research with a newly constructed dataset of Norwegian equity mutual funds from 1997 until 2017. We measure the survivorship bias using different methodical approaches, and show that different combinations of methods yield different result. Additionally, we analyse the relationship between performance, size and disappearance. Overall, the evidence points to a substantial survivorship bias in the Norwegian mutual fund market regardless of method applied. In general, we find the relationship between fund size and performance to be positive, however, in some cases the smallest fund group outperform larger funds. The disappearance rate of funds increases with decreasing fund size and is accelerating.