Seeing is believing!
Before you order, simply sign up for a free user account and in seconds you'll be experiencing the best in CFA exam preparation.
Basic Question 6 of 8
Survivorship bias tends ______ historical estimates of the equity risk premium.
B. to deflate.
C. not to affect.
A. to inflate.
B. to deflate.
C. not to affect.
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 | gregsob2 |
| thebkr777 | thanks prabhur08 |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
explain historical and forward-looking approaches to estimating an equity risk premium;
CFA® 2025 Level II Curriculum, Volume 3, Module 18.