The Journal of Finance

The Delisting Bias in CRSP Data

Published: 04/18/2012   |   DOI: 10.1111/j.1540-6261.1997.tb03818.x

TYLER SHUMWAY

I document a delisting bias in the stock return data base maintained by the Center for Research in Security Prices (CRSP). I find that delists for bankruptcy and other negative reasons are generally surprises and that correct delisting returns are not available for most of the stocks that have been delisted for negative reasons since 1962. Using over‐the‐counter price data, I show that the omitted delisting returns are large. Implications of the bias are discussed.

Good Day Sunshine: Stock Returns and the Weather

Published: 05/06/2003   |   DOI: 10.1111/1540-6261.00556

David Hirshleifer, Tyler Shumway

Psychological evidence and casual intuition predict that sunny weather is associated with upbeat mood. This paper examines the relationship between morning sunshine in the city of a country's leading stock exchange and daily market index returns across 26 countries from 1982 to 1997. Sunshine is strongly significantly correlated with stock returns. After controlling for sunshine, rain and snow are unrelated to returns. Substantial use of weather‐based strategies was optimal for a trader with very low transactions costs. However, because these strategies involve frequent trades, fairly modest costs eliminate the gains. These findings are difficult to reconcile with fully rational price setting.

Expected Option Returns

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00352

Joshua D. Coval, Tyler Shumway

This paper examines expected option returns in the context of mainstream asset‐pricing theory. Under mild assumptions, expected call returns exceed those of the underlying security and increase with the strike price. Likewise, expected put returns are below the risk‐free rate and increase with the strike price. S&P index option returns consistently exhibit these characteristics. Under stronger assumptions, expected option returns vary linearly with option betas. However, zero‐beta, at‐the‐money straddle positions produce average losses of approximately three percent per week. This suggests that some additional factor, such as systematic stochastic volatility, is priced in option returns.

Is Sound Just Noise?

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00393

Joshua D. Coval, Tyler Shumway

We analyze the information content of the ambient noise level in the Chicago Board of Trade's 30‐year Treasury Bond futures trading pit. Controlling for a variety of other variables, including lagged price changes, trading volumes, and news announcements, we find that the sound level conveys information which is highly economically and statistically significant. Specifically, changes in the sound level forecast changes in the cost of transacting. Following a rise in the sound level, prices become more volatile, depth declines, and information asymmetry increases. Our results offer important implications for the future of open outcry and floor‐based trading mechanisms.

Do Behavioral Biases Affect Prices?

Published: 07/20/2005   |   DOI: 10.1111/j.1540-6261.2005.00723.x

JOSHUA D. COVAL, TYLER SHUMWAY

This paper documents strong evidence for behavioral biases among Chicago Board of Trade proprietary traders and investigates the effect these biases have on prices. Our traders appear highly loss‐averse, regularly assuming above‐average afternoon risk to recover from morning losses. This behavior has important short‐term consequences for afternoon prices, as losing traders actively purchase contracts at higher prices and sell contracts at lower prices than those that prevailed previously. However, the market appears to distinguish these risk‐seeking trades from informed trading. Prices set by loss‐averse traders are reversed significantly more quickly than those set by unbiased traders.

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

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00192

Tyler Shumway, Vincent A. Warther

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.