Quote:
Originally Posted by ReplayRandall
Look back at the 30 companies that made up the Dow back in your younger days...How many are still there as part of the Dow 30 ?....Not many.
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Ahhh...survivability bias is real
https://seekingalpha.com/article/207...ex-performance
Quote:
Enron, Worldcom Global Crossing, and endless dot com blowups maintained substantial influence in the Russell 1000 during Tick Data five year test period, 1998 - 12/31/2003. However by virtue of defining the universe (RUS1000) as of 12/31/2003, these companies, and their negative downside performance had been excluded. As time and distance from these points of failure increased so did the positive skew in the Index data from which many traders made their assertions and recommendations for investment decisions.
This is inherently problematic on two levels. On one level it creates a false level of optimism when looking at the Russell 1000 Index as the companies included in the index on or by 2003 excludes a significant number of major deadbeats, and in the same vein the companies that were replacements to the dead beats most likely exhibited extraordinary growth in a short time period, Type 2 bias e.g. Carmax which was added to the index in December 2002 and since they had a relatively short existence their 5 year historical analysis include returns of 477% in 2001 and 66% in 2000 this gets added to the mix and causes people deconstructing the indices to their basic components to drastically overstate an indexes relative performance.
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must be nice to tout how well your index does and be able to remove the horrid performers and replace them with mega-stars every few years...
