Do You Know What's in Your Benchmark?

Posted: 19 Oct 2013

See all articles by Steve Crawford

Steve Crawford

University of Houston

James C. Hansen

Weber State University Goddard School of Business and Economics

Richard A. Price

University of Oklahoma

Date Written: October 18, 2013

Abstract

The authors identify several problematic assumptions underlying the benchmark return methodology used by the Center for Research in Security Prices (CRSP), which practitioners and academics would be unlikely to know or mimic. In particular, CRSP includes non-common stock securities that most researchers exclude. CRSP does not follow a typical buy-and-hold methodology, and it excludes delisting returns. The authors discuss these issues and show how they can affect results in a number of research settings. The commonly used value-weighted, size-based benchmark returns, as well as all equally weighted daily benchmark returns, are particularly problematic.

Keywords: abnormal returns, anomalies, portfolio weights, CRSP, delisting, benchmark returns

JEL Classification: G14, M41, G33, G34

Suggested Citation

Crawford, Steve and Hansen, James C. and Price, Richard A., Do You Know What's in Your Benchmark? (October 18, 2013). Journal of Portfolio Management, Vol. 39, No. 3, 2013. Available at SSRN: https://ssrn.com/abstract=2342287

Steve Crawford

University of Houston ( email )

Houston, TX 77204
United States

James C. Hansen

Weber State University Goddard School of Business and Economics ( email )

1337 Edvalson St. Dept 3803
Ogden, UT 84408
United States
801-626-6433 (Phone)

Richard A. Price (Contact Author)

University of Oklahoma ( email )

307 W Brooks
Norman, OK 73019
United States
405-325-5759 (Phone)

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