I am quite new to studying finance so apologies if this turns out to be a trivial question. I am writing my first essay where I want to test a value strategy from 2009-2019 by yearly ranking of the stocks by their P/CF ratio, forming 5 portfolios, evaluating their performance.

Regarding survivorship bias, I understand that it is necessary to consider the members of the index in each year under analysis (i.e. for the holding year 2009 - 2010, the index constituents per 2009 are to be considered) But I am unsure if 2009 as a starting year would cause issues, meaning that only the survivors of the market crash are considered. Do you see any issue with this or am I making a thinking error?

Thank you for your help.

  • 4
    $\begingroup$ The main issue you are likely to run into is to that you have a short sample that does not have any meaningful market crash. So, yes, you are not testing your strategies to states of the world where there are market crashes. $\endgroup$
    – phdstudent
    Jan 20, 2021 at 17:00
  • $\begingroup$ Ah I see, thank you. So you would recommend extending the analysis period to some years before the crisis happened? $\endgroup$
    – pasz
    Jan 20, 2021 at 17:15
  • 1
    $\begingroup$ That's correct. The more data you have the better. Even though never forget the future may be very different from the past. So backtesting may fail in many circumstances. $\endgroup$
    – phdstudent
    Jan 20, 2021 at 17:16


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