Survivorship bias

Survivorship bias is the error of backtesting only on assets that survived to today, which silently deletes past failures and flatters results.

Survivorship bias creeps in when a backtest draws its universe from the stocks that are in an index today, then runs that universe backwards in time. The companies that were dropped from the index along the way — the ones that collapsed, delisted, or merged — quietly vanish from the test. The strategy is graded only against the survivors, so it looks better than it would have to a real investor making decisions in the past.

An honest backtest measures and reports this. Thuztra grades every run none / low / medium / high for survivorship exposure, and can restrict candidates point-in-time to the stocks that were actually in the index at each rebalance date, rather than pretending the survivors were always there.

Definitions are educational and consistent with Thuztra’s backtest methodology. Backtests are research, not investment advice; past performance does not predict future results.