Systematic underestimation of mutual fund alphas

Systematic underestimation of mutual fund alphas

09-03-2016 | From the field

This study* argues that because mutual funds often disappear following poor performance, some funds disappear because of bad luck and not because their true alpha is low. A fund that disappears because of bad luck leaves behind in the records an alpha estimate that is too low.

  • David Blitz
    Head of Quant Research

Because no mechanism eliminates mutual funds that just happen to be lucky, the observed distribution of alphas paints a picture about the prevalence of skill among actively managed funds that is too pessimistic. This ‘reverse survivorship bias’ is estimated to result in an underestimation of the true alphas of actively managed funds by around 60 basis points per year.

Stay informed on Quant investing with monthly mail updates
Stay informed on Quant investing with monthly mail updates
From the field
From the field

Our researchers publish many whitepapers based on their own empirical studies; they also follow quantitative research done by others.

Read all articles
Subjects related to this article are:


The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).

The funds shown on this website may not be available in your country. Please select your country website (top right corner) to view the products that are available in your country.

Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.

By clicking Proceed I confirm that I am a professional investor and that I have read, understood and accept the terms of use for this website.