Stochastic Properties of Time-Averaged Financial Data: Explanation and Empirical Demonstration Using Monthly Stock Prices

Posted: 13 Sep 2002

See all articles by Jack W. Wilson

Jack W. Wilson

North Carolina State University - Department of Business Management

Charles P. Jones

North Carolina State University - Department of Business Management

Leonard L. Lundstrum

Northern Illinois University

Abstract

This article considers the potential statistical problems resulting from the use of averaged rather than end-of-period data in financial research. Averaged data are widely employed throughout the literature without explicit recognition that the use of such data results in biased estimates of the variance, covariance and autocorrelation of the first as well as higher order changes. We illustrate the magnitude of the biases, using the S&P 500 end-of-month series over the period March 1957 to February 2001. Results confirm the predictions of Working and of Schwert. In addition, an analysis of the properties of higher-order lags indicates that the bias persists, a result not previously suggested in the literature. We also find that these statistical biases are time varying - which has significant implications for empirical financial research.

Suggested Citation

Wilson, Jack W. and Jones, Charles P. and Lundstrum, Leonard L., Stochastic Properties of Time-Averaged Financial Data: Explanation and Empirical Demonstration Using Monthly Stock Prices. Available at SSRN: https://ssrn.com/abstract=311265

Jack W. Wilson

North Carolina State University - Department of Business Management ( email )

32A Nelson Hall
P.O. Box 7229
Raleigh, NC 27695
United States
919-515-4327 (Phone)
919-515-6943 (Fax)

Charles P. Jones (Contact Author)

North Carolina State University - Department of Business Management ( email )

33B Nelson Hall
Campus Box 7229
Raleigh, NC 27695
United States
919-515-6940 (Phone)
919-515-6943 (Fax)

Leonard L. Lundstrum

Northern Illinois University ( email )

Wirtz Hall
DeKalb, IL 60115
United States
815 753 0317 (Phone)
815 753 0504 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
588
PlumX Metrics