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Return calculation with missing values
 Posted: 10 April 2013 01:54 AM [ Ignore ]
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Total Posts:  34
Joined  2013-03-31

Hi Joost,

I was trying to calculate stocks’ average monthly returns. Some stocks may have missing value in returns for various reasons. How do we usually treat it?

I did not find papers describing it very clearly.

Also, for annual returns, how do we deal with missing monthly returns.

Thank you very much!

Best regards,

Anna

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 Posted: 10 April 2013 09:31 AM [ Ignore ]   [ # 1 ]
Total Posts:  901
Joined  2011-09-19

hi Anna,

The missing stock returns are related to OTC and Pink sheets. Exchanges may move firms off their ‘main exchange’ into these when they violate rules (share price below a level, or late with filings, etc). These OTC/Pink sheet returns are not on CRSP.

What I have understood - but I never verified it - is that the ‘missing’ returns are incorporated into the next available return. For example, if a stock was on OTC for 3 months, and has a return of say 5%, and month 4 it is back and has a return of 1% in that fourth month, it will show as 6% in month 4 and missings in months 1-3. (Please verify this!)

So, if this indeed the case, computing a yearly return and dividing that by 12 is fine if at least the beginning and end month is available.

Hope this helps,

Joost

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 Posted: 10 April 2013 12:47 PM [ Ignore ]   [ # 2 ]
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Hi Joost,

Thank you for your reply. I was wondering whether I should divide by 12 or the real number of months with non-missing data. If I divide by 12, it is like treating the missing month as having zero return.

All the best,

Anna

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 Posted: 10 April 2013 12:51 PM [ Ignore ]   [ # 3 ]
Total Posts:  901
Joined  2011-09-19

hi Anna,

This is something to verify: if there is a monthly return for the first month of the year, and for the last month of the year and returns of ‘missing’ months are included in the first following non-missing month, then divide by 12. Maybe take a firm with a missing month and compare returns with finance.yahoo.com

best regards,

Joost

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 Posted: 10 April 2013 01:02 PM [ Ignore ]   [ # 4 ]
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Total Posts:  34
Joined  2013-03-31

Hi Joost,

I see. Then in general it will make sense dividing by 12! I will check specific stocks with finance.yahoo.com

Thank you very much,

Anna

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