Ranking of equity mutual funds: The bias in using survivorship bias-free datasets

Using survivorship bias-free datasets to rank fund performance introduces a market climate bias that depends on the lengths of the funds’ return histories. Based on Carhart’s (1997) four-factor model, we analytically show how the market climate affects commonly used performance measures. Our empirical results confirm that this market climate bias creates different rankings depending on the measure used for US equity funds. Moreover, the data availability within the fund sample impacts correlations between rankings based on different measures. Adjusting measures for the different fund return histories corrects for the market climate bias and produces more consistent rankings across different measures. JEL: G 11