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Caveat Compounder: A Warning about Using the Daily CRSP Equal-Weighted Index to Compute Long-Run Excess Returns.
- Source :
- Journal of Finance (Wiley-Blackwell); Feb1998, Vol. 53 Issue 1, p403-416, 14p, 6 Charts
- Publication Year :
- 1998
-
Abstract
- 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. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 00221082
- Volume :
- 53
- Issue :
- 1
- Database :
- Complementary Index
- Journal :
- Journal of Finance (Wiley-Blackwell)
- Publication Type :
- Academic Journal
- Accession number :
- 235535
- Full Text :
- https://doi.org/10.1111/0022-1082.165353