Caveat Compounder: A Warning About Using The Daily CRSP Equal Weighted Index To Compute Long-Run Excess Returns  

Oleh:

Canina, Linda ; Michaely, Roni ; Thaler, Richard H. ; Womack, Kent L.

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 53 no. 1 (Feb. 1998), page 403-416.
Topik: research centers; security price; COMPOUNDED tapes daily; monthly; CRSP
Fulltext: p 403.pdf (74.65KB)

Isi artikel

This paper issues a warning that compounding daily returns of the Center for Research in Security Prices (CRSP) equal-weighted index can lead to surprisingly large biases. The differences between the monthly returns compounded from the daily tapes and the monthly CRSP equal-weighted indices is almost 0.43 percent per month, or 6 percent per year. This difference amounts to one-third of the average monthly return, and is large enough to reverse the conclusions of a paper using the daily tape to compute the return on the benchmark portfolio. We also investigate the sources of these biases and suggest several alternative strategies to avoid them

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