Survivorship Bias: Revealing the Hidden Truths of the S&P 500

Survivorship bias is a significant challenge in financial backtesting, especially when analyzing indices like the S&P 500 (SPY). This bias occurs when backtests analyze only current constituents, ignoring companies removed due to bankruptcy, poor performance, or mergers. This often leads to overestimated returns and underestimated risk, which we don’t w…