Calculate 12-month buy-and-hold return
Posted: 12 February 2015 07:51 AM   [ Ignore ]
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What is the right way to calculate a 12-month buy-and-hold return in Stata? (if the return does not necessarily correspond to the fiscal year!; e.g. fiscal-year + 3 months)

This is what I have so far:

If the return window corresponds to the fiscal-year, one can use: (PRCC_F/AJEX + DVPSX_F/AJEX)/PRCC_F(t-1)/AJEX)-1

If the return window does not correspond to the fiscal-year, use daily CRSP files and: ADJPRC+ (DIVAMT/ CUMFACPR/ FACPR)) / ADJPRC(t-1)) – 1

Is that right or am I doing something wrong here?

Thanks!!

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Posted: 12 February 2015 03:46 PM   [ Ignore ]   [ # 1 ]
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hi,

It looks like dividends are not taken into account when the window shifted by 3 months (2nd return).

It may be personal preference, but I would compound monthly returns (using RET in crsp). That way there is no need to control for stock splits.

best regards,

Joost

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Posted: 19 February 2015 01:49 PM   [ Ignore ]   [ # 2 ]
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Hi Joost,

thx for the quick answer. I think dividends are taken into account in the second calculation (DIVAMT). In terms of monthly returns - you would derive the raw returns from CRSP monthly and then simply add log-returns right? (let’s say returns from APRIL 2010 - MARCH 2011 for a December year-end firm..

Another related question - I also wanted to derive a variable to get a sense for the yearly share turnover - so far, I found this - TURN = CSHTR_F/CSHO - not sure if this really works?

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Posted: 20 February 2015 12:11 PM   [ Ignore ]   [ # 3 ]
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hi,

Yes, adding logs of monthly returns makes sense.

CSHTR_F sounds like a relevant variable, I’ve not used it before, so I’m not sure how ‘good’ it is (missings, reliable, etc).

When pulling in the monthly returns, you can also get the shares traded (vol) and shares outstanding from crsp. In that way, the return and trading activity are measured over the same period (3 month lag), and it would be robust to stock splits during the fiscal year.

best regards,

Joost

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