calculating total return (with div)
Posted: 11 April 2015 05:39 PM   [ Ignore ]
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Hello everyone,

I notice that the formula for calculating total return including dividends given on the CRSP documentation (seen here: http://leiq.bus.umich.edu/docs/crsp_calculations_splits.pdf) is:

Total Return = (adjprc + (divamt / cumfacpr / facpr)) / prev_adjprc -1

However, as facpr is often 0 this formula would return an error. What am I getting wrong?

I suspect the reason behind this is that facpr refers to “factor to adjust price in period” and not “factor to adjust price”. However I do not really understand how to derive “factor to adjust price in period” from “factor the adjust price”. The CRSP documentation states:

Factor to Adjust Prices in Period is the amount the current price is multiplied by in returns calculations so that current
and previous prices are on the same split-adjusted basis. Factor to Adjust Prices in Period is derived from the
Factor to Adjust Price (Page 61) field of distributions with Ex-Distribution Dates after the previous period and up to
and including the current period. In simple stock splits, Factor to Adjust Prices in Period is distribution Factor to
Adjust Price plus one.

What does this actually mean and is it relevant for my problem of calculating the total return?

Thank you!

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Posted: 12 April 2015 06:27 AM   [ Ignore ]   [ # 1 ]
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hi Kean,

Do you have an example (dataset-ticker-date) with a possible calculation error (for example, one with a dividend payment but with zero facpr)?

Best regards,

Joost

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Posted: 12 April 2015 12:14 PM   [ Ignore ]   [ # 2 ]
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Yep.
Dataset: crspa/dsf /
Date: day / 01Jan2012 - 31Dec2014
TICKER: ORCL

For example Oracle has a dividend payment at 20120109 of 0.06 but a FACPR of 0.

The data I’m working with is this one: https://wrds-sol1.wharton.upenn.edu/output/580b4038828c2b74.html? (not sure if these links can be used across accounts, but if it can here it is)

Thanks!

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Posted: 12 April 2015 12:18 PM   [ Ignore ]   [ # 3 ]
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My thinking is that it does make sense for it to be 0 since it is a cash dividend.

Extended Information
Factor to Adjust Price equals Factor to Adjust Shares Outstanding for most distribution events. There are three types of distributions where this is the case:

For ordinary cash dividends or partial liquidating payments, Factor to Adjust Price is set to zero.
For cases of mergers, total liquidations, or exchanges where all shares were exchanged, a final liquidation payment was announced, or the security disappeared, Factor to Adjust Price is set to negative one by convention.
For stock dividends and splits, Factor to Adjust Price is the number of additional shares per old share issued:

facpr = (s(t) - s(t’))/s(t’) = (s(t)/s(t’)) - 1

where s(t) is the number of shares outstanding, t is a date after or on the Ex-Distribution Date for the split, and t’ is a date before the split. In a reverse split, Factor To Adjust Price will be between -1 and 0.

http://www.crsp.com/products/documentation/data-definitions-f#factor-to-adjust-price-in-period

But in that case I don’t understand the given total return formula.

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Posted: 13 April 2015 12:00 PM   [ Ignore ]   [ # 4 ]
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hi Kean,

Maybe the adjustment factors in the datasets are not the ones used in the formulas.

I would look for some companies that pay out cash/stock dividends, and have a stock split in the same period, and see if the return/dividend/adjustment variables make sense.

Best regards,

Joost

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