how to calculate size-adjusted returns
Posted: 28 February 2014 10:48 PM   [ Ignore ]
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Hi, I am currently trying to calculate size-adjusted returns.
I have a general idea about it: subtract from the firm’s daily returns the equally-weighted market return for forms in the same market capitalization decile.
My question is how to construct market capitalization decile for all the listed companies? are such data available on wrds or from other sources?
and should I include companies from different stock exchanges (e.g NYSE, AMEX, Nasdaq)?
I am in a hurry to complete this and would highly appreciate your help!

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Posted: 01 March 2014 09:55 AM   [ Ignore ]   [ # 1 ]
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hi,

Yes, you would need to create size-portfolios. I often see papers create the size deciles based on NYSE firms only, but subsequently apply the decile-cutoffs to all firms (including AMEX, Nasdaq).

You would need to decide ‘when’ (and how often) to create these deciles. For example, you can create size deciles on the last trading day of each quarter, and then compute the average returns for each decile for the next 3 months using that decile ranking. (These returns would be subtracted from raw returns to get to size-adjusted returns.)

Hope this helps,

Joost

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Posted: 02 March 2014 04:45 AM   [ Ignore ]   [ # 2 ]
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Thanks Joost for your quick response.
I heard that someone used SAS code to obtain files from WRDS, erdport.
I’m a stata user and currently not good at SAS. I tried to use web query to search for the file.
I looked at CRSP stock / portfolio assignments / capitalization deciles for the size deciles. I can only get the decile ranking for the firms but don’t know how to find the return for each corresponding decile on WRDS.
Could you kindly advise on this?
Also, Ken French’s website has size deciles. Are they the same as the deciles in WRDS?
Thanks so much for your help.

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Posted: 02 March 2014 01:40 PM   [ Ignore ]   [ # 3 ]
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hi,

Yes, erdport-datasets may be the easiest way to get to the data.

If you look at the table description, this table holds the ‘raw’ return, the size decile assignment, and the decile return:
http://wrds-web.wharton.upenn.edu/wrds/tools/variable.cfm?library_id=20&file_id=67324

This dataset seems reachable with the web interface to download datasets. Select CRSP, then Stock / Portfolio Assignments and then Capitalization Deciles.

You can also navigate the wrds directory structure with SSH (open source), and download SAS datasets to your computer and then convert it to Stata format with Stat Transfer.

The drawback of erdport-datasets is that there are observations that seem to be missing. (At least when I used them some time ago) So, constructing it yourself could get you a larger sample. Time-wise it is probably better to go with erdport-datasets.

I don’t know about the size decile data on French’s website. Obviously, the guy has a huge reputation, so it must be good smile

best regards,

Joost

 

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Posted: 20 June 2016 04:02 PM   [ Ignore ]   [ # 4 ]
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Hi Joost.

I am working on size-adjusted returns by measuring the buy-hold return in excess of the buy-hold return on a value-weighted portfolio (based on size deciles of NYSE and AMEX firms) and also adjustments using Jensen alphas at the portfolio level. I know Eventus can be used to calculate this. Do you know the best way to use Eventus for this or how do I do this using data from CRSP? Thank you for the help.

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Posted: 21 June 2016 03:38 PM   [ Ignore ]   [ # 5 ]
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hi Lala24,

NYSE/Amex decile returns are on CRSP: https://wrds-web.wharton.upenn.edu/wrds/tools/variable.cfm?library_id=137&file_id=67008

These may not be complete (has missings), so you could also construct these yourself. There is an older post here that may be helpful: http://www.wrds.us/index.php/repository/view/6

I haven’t used Eventus, it is probably more transparent if you code it up yourself.

I’m not sure what Jensen’s alphas are. Is that the intercept of a regression on returns with factors like size, mtb, beta?

Best,

Joost

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