The Journal of Finance

The Delisting Bias in CRSP Data

Published: 3/1997,  Volume: 52,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1997.tb03818.x  |  Cited by: 1058

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: 5/6/2003,  Volume: 58,  Issue: 3  |  DOI: 10.1111/1540-6261.00556  |  Cited by: 1346

David Hirshleifer, Tyler Shumway

Abstract 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.

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

Published: 12/1999,  Volume: 54,  Issue: 6  |  DOI: 10.1111/0022-1082.00192  |  Cited by: 479

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.

Is Sound Just Noise?

Published: 10/2001,  Volume: 56,  Issue: 5  |  DOI: 10.1111/0022-1082.00393  |  Cited by: 93

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.

Expected Option Returns

Published: 6/2001,  Volume: 56,  Issue: 3  |  DOI: 10.1111/0022-1082.00352  |  Cited by: 646

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.

Do Behavioral Biases Affect Prices?

Published: 2/2005,  Volume: 60,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2005.00723.x  |  Cited by: 454

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.

Volatility‐Managed Portfolios

Published: 5/15/2017,  Volume: 72,  Issue: 4  |  DOI: 10.1111/jofi.12513  |  Cited by: 525

ALAN MOREIRA, TYLER MUIR

Managed portfolios that take less risk when volatility is high produce large alphas, increase Sharpe ratios, and produce large utility gains for mean‐variance investors. We document this for the market, value, momentum, profitability, return on equity, investment, and betting‐against‐beta factors, as well as the currency carry trade. Volatility timing increases Sharpe ratios because changes in volatility are not offset by proportional changes in expected returns. Our strategy is contrary to conventional wisdom because it takes relatively less risk in recessions. This rules out typical risk‐based explanations and is a challenge to structural models of time‐varying expected returns.

How Credit Cycles across a Financial Crisis

Published: 3/4/2025,  Volume: 80,  Issue: 3  |  DOI: 10.1111/jofi.13431  |  Cited by: 37

ARVIND KRISHNAMURTHY, TYLER MUIR

We analyze the behavior of credit and output in financial crises using data on credit spreads and credit growth. Crises are marked by a sharp rise in credit spreads, signaling sudden shifts in expectations. The severity of a crisis can be predicted by the extent of credit losses (spread increases) and financial sector fragility (precrisis credit growth). This interaction is a key feature of crises. Postcrisis recessions are typically severe and prolonged. Notably, precrisis spreads tend to drop to low levels while credit growth accelerates, indicating that credit supply expansions often precede crises. The 2008 crisis aligns with these patterns.

Do Intermediaries Matter for Aggregate Asset Prices?

Published: 10/21/2021,  Volume: 76,  Issue: 6  |  DOI: 10.1111/jofi.13086  |  Cited by: 136

VALENTIN HADDAD, TYLER MUIR

Poor financial health of intermediaries coincides with low asset prices and high risk premiums. Is this because intermediaries matter for asset prices, or because their health correlates with economy‐wide risk aversion? In the first case, return predictability should be more pronounced for asset classes in which households are less active. We provide evidence supporting this prediction, suggesting that a quantitatively sizable fraction of risk premium variation in several large asset classes such as credit or mortgage‐backed securities (MBS) is due to intermediaries. Movements in economy‐wide risk aversion create the opposite pattern, and we find this channel also matters.

Volatility Expectations and Returns

Published: 2/24/2022,  Volume: 77,  Issue: 2  |  DOI: 10.1111/jofi.13120  |  Cited by: 111

LARS A. LOCHSTOER, TYLER MUIR

We provide evidence that agents have slow‐moving beliefs about stock market volatility that lead to initial underreaction to volatility shocks followed by delayed overreaction. These dynamics are mirrored in the VIX and variance risk premiums, which reflect investor expectations about volatility, and are also supported in both surveys and firm‐level option prices. We embed these expectations into an asset pricing model and find that the model can account for a number of stylized facts about market returns and return volatility that are difficult to reconcile, including a weak or even negative risk‐return trade‐off.

Ex‐Dividend Profitability and Institutional Trading Skill

Published: 1/12/2017,  Volume: 72,  Issue: 1  |  DOI: 10.1111/jofi.12472  |  Cited by: 46

TYLER R. HENRY, JENNIFER L. KOSKI

We use institutional trading data to examine whether skilled institutions exploit positive abnormal ex‐dividend returns. Results show that institutions concentrate trading around certain ex‐dates, and earn higher profits around these events. Dividend capture trades represent 6% of all institutional buy trades but contribute 15% of overall abnormal returns. Institutional dividend capture trading is persistent. Institutional ex‐day profitability is also strongly cross‐sectionally related to trade execution skill. The relation between execution skill and profits disappears around placebo non‐ex‐days. Results suggest that skilled institutions target certain opportunities rather than benefiting uniformly over time. Furthermore, only skilled institutions can profit from dividend capture.

Financial Intermediaries and the Cross‐Section of Asset Returns

Published: 11/10/2014,  Volume: 69,  Issue: 6  |  DOI: 10.1111/jofi.12189  |  Cited by: 701

TOBIAS ADRIAN, ERKKO ETULA, TYLER MUIR

Financial intermediaries trade frequently in many markets using sophisticated models. Their marginal value of wealth should therefore provide a more informative stochastic discount factor (SDF) than that of a representative consumer. Guided by theory, we use shocks to the leverage of securities broker‐dealers to construct an intermediary SDF. Intuitively, deteriorating funding conditions are associated with deleveraging and high marginal value of wealth. Our single‐factor model prices size, book‐to‐market, momentum, and bond portfolios with an R2 of 77% and an average annual pricing error of 1%—performing as well as standard multifactor benchmarks designed to price these assets.