12 month Stock Return caculation
Posted: 23 September 2012 09:58 AM   [ Ignore ]
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In theory, stock return could be calculated by:  return of a stock =  (Price_end - Price_beginning + dividend per share) / price_beginning.  However, price_end and price_beginning variables in compustat are not complete (Credits to Joost).

Therefore, we want to use CRSP stock return to calcualtive the cumulative 12 month stock return , and in theory it should yeild the same results as above equation.

MSF file give stock return for each month:

log(1+r4) + log(1+r5) +...+ Log(1+r12) + Log(1+r1)+ Log(1+r2) + Log(1+r3)=  Log (1+ R)

R here is the cumulative return of one year´╝î r1 .. r12 is return for each specific month.

*one year circle from Month 4 to next year Month 3 to take care the effect of earnings annnounce (around March).
*Beaver 2007 JAE showed delisted firms return should be taken care too.

Hi everyone here:
Is this good enough or we have to use DSF for this calculation?

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Zenghui
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Posted: 24 September 2012 02:04 AM   [ Ignore ]   [ # 1 ]
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hi Zenghui,

I would think that dsf is usuful for ‘small’ periods, and msf for longer periods. When computed over the same period, you should end up with the same return. (returns are raw, not log).

An interesting thing I understood - I did not check to verify - is that msf corrects for periods where a stock was pink-listed. So, if for a couple of months no returns are available, this is taken into account in the month where it is again listed normally. So, if you want to compute a one-year return, you can ignore months with missing msf data within the year.

best,

Joost

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Posted: 24 September 2012 10:18 AM   [ Ignore ]   [ # 2 ]
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Joost,

Thanks a lot for the comments! Good to know MSF has such feature.

smile

Cheers!

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Zenghui
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