The Delisting Bias in CRSP's Nasdaq Data and Its Implications for the Size Effect

We investigate the bias in CRSP's Nasdaq data due to missing returns for delisted stocks. We find that the missing returns are large and negative on average, and that delisted stocks experience a substantial decrease in liquidity. We estimate that using a corrected return of -55 percent for mis...

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Bibliographic Details
Published in:The Journal of finance (New York) 1999-12, Vol.54 (6), p.2361-2379
Main Authors: Shumway, Tyler, Warther, Vincent A.
Format: Article
Language:English
Subjects:
Arithmetic mean
Bias
Common stock
Estimation bias
Financial portfolios
Impact analysis
Nasdaq Composite Index
NASDAQ trading
Research biases
Security prices
Shorter Papers
Statistical analysis
Stock exchanges
Stock market delistings
Stock prices
Studies
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Summary:We investigate the bias in CRSP's Nasdaq data due to missing returns for delisted stocks. We find that the missing returns are large and negative on average, and that delisted stocks experience a substantial decrease in liquidity. We estimate that using a corrected return of -55 percent for missing performance-related delisting returns corrects the bias. We revisit previous work which finds a size effect among Nasdaq stocks. After correcting for the delisting bias, there is no evidence that there ever was a size effect on Nasdaq. Our results are inconsistent with most risk-based explanations of the size effect.
ISSN:0022-1082
1540-6261
DOI:10.1111/0022-1082.00192