Return (compustat global) for estimation period for event study
Posted: 18 July 2014 04:36 PM   [ Ignore ]
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I am working on my first year summer replication paper and am VERY new to this database.  The paper I’ve chosen compares U.S. returns to foreign returns (excluding firms that are cross listed) in order to establish a benchmark and then to determine if there is a U.S. reaction to SOX (very brief general description).  CRSP provides the return for U.S.  But, it seems I have to calculate the return for the foreign returns in Compustat Global.  Is this correct?  I see there is an “adjustment factor” provided and I need to translate currency to U.S. dollars.  I just don’t know how to do this or how to do it in SAS or if I am even on the right track with this.

Can anyone help?

Thanks in advance!

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Posted: 20 July 2014 06:38 PM   [ Ignore ]   [ # 1 ]
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hi Samme,

Yes, Compustat Global would be a place to find stock returns. Another source that is widely used is DataStream.

I have once tried to use Compustat Global, but I had difficulty in computing returns (I used historical prices from Yahoo finance as a benchmark). You will need to adjust for stock splits and stock dividends.

Are you sure you need exchange rates? I would expect that the return would be based on the currency it is traded in. For example, if a stock is listed in EUR, and it moves from 10 to 12 euro, you can compute the return without converting the stock price to dollars. If you would convert, you basically introduce currency gains/losses on EUR-USD.

Hope this helps,

Joost

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Posted: 20 July 2014 07:14 PM   [ Ignore ]   [ # 2 ]
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I am comparing foreign returns to U.S. returns.  That’s why I feel I need exchange rates.  I need to compare apples to apples, right?  Am I wrong about that?  Please let me know.  Again, I am very NEW to this. Unfortunately, I don’t have access to DataStream.

The paper I am replicating, analyzes the affects of SOX legislation on returns and uses Foreign returns as a benchmark.  This is because foreign companies not traded on US exchanges didn’t adhere to SOX. So, the extimation period compares US and Foreign returns.  I have calculated the return using the formula provided by Compustat which includes two adjustment factors. 

This is VERY complicated!

Thanks again!

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Posted: 20 July 2014 08:11 PM   [ Ignore ]   [ # 3 ]
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hi Samme,

About the foreign exchange rate - Ideally you would refer to existing research and ‘copy’ their method. If that is not available, it probably makes most sense to do it both ways: with and without adjusting for exchange rates and report 1 way in the tables, the other way in footnotes.

If you are unsure of the calculations, it is probably good to take a few companies, and compare your data (and calculations) with the data provided by Yahoo finance. Yahoo finance stock prices are corrected for stock splits, so that should give confidence if your returns are similar. If it doesn’t match, then work your calculation through for a single case; once that works, you can then ‘generalize’ and compute returns for your full sample.

best regards,

Joost

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Posted: 29 July 2014 10:57 AM   [ Ignore ]   [ # 4 ]
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Hi!  And, thank you for your help so far!  I have another related question.  I need to have value-weighted daily returns of the foreign stocks.  In the paper I am replicating it says, “the market capitalization of each stock in U.S. dollars on day t-1 is used to compute the weight of returns of that day t.”  Do I need to use the adjustment factors to calculate the market capitalization of each stock or is it simply the stock price in US dollars multiplied by the shares outstanding divided by the total market value?

Thank you for your assistance!

samme

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Posted: 29 July 2014 06:56 PM   [ Ignore ]   [ # 5 ]
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hi Samme,

It looks like if you have the market cap in the ‘local’ currency, you need the exchange rate to get it into dollars. In case I am missing the point, do you have a numerical example?

best regards,

Joost

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Posted: 29 July 2014 08:09 PM   [ Ignore ]   [ # 6 ]
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Hi!

I think I’ve answered my own question!

Thanks!

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Posted: 29 July 2014 09:02 PM   [ Ignore ]   [ # 7 ]
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smile

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