Return calculation with missing values
Posted: 10 April 2013 01:54 AM   [ Ignore ]
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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!

Other friends who know the answer are welcome to answer.

Best regards,

Anna

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Posted: 10 April 2013 09:31 AM   [ Ignore ]   [ # 1 ]
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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 ]
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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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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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