Is the United States a Lucky Survivor? A Hierarchical Bayesian Approach
JULES VAN BINSBERGEN, SOPHIA HUA, JONAS PEETERS, JESSICA WACHTER
The Journal of Finance · 2025 · Volume 80 · Issue 4
Abstract
Using international data, we quantify the magnitude of survivorship bias in U.S. equity market performance, finding that it explains about one-third of the equity risk premium in the past century. We model the subjective crash belief of an investor who infers the crash risk in the United States by cross-learning from other countries. The U.S. crash probability shows a persistent and widening divergence from the implied global average. We attribute the upward bias in the measured equity premium to crashes that did not occur in-sample and to shocks to valuations resulting from learning about the probability.
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