Analysts must recognize several common data issues that can distort investment analysis:
Transcription errors: Mistakes made when recording or inputting data, leading to inaccurate datasets.
Survivorship bias: Occurs when data only includes entities that have survived the period being analyzed. This can overstate performance, especially in hedge fund databases or mutual fund studies.
Appraisal (smoothed) data: Used when market prices are unavailable (e.g., real estate). These values change less frequently and tend to understate volatility and lower correlations with other assets, potentially misleading portfolio risk assessments.