Missing Financial Data

Abstract

We document the widespread nature and structure of missing observations of firm fundamentals and show how to systematically deal with them. Missing financial data affects over 70% of firms that represent about half of the total market cap. Firm fundamentals have complex systematic missing patterns, invalidating traditional ad-hoc approaches to imputation. We propose a novel imputation method to obtain a fully observed panel of firm fundamentals, that exploits both time-series and cross-sectional dependency of data to impute their missing values, and allows for general systematic patterns of missingness. We document important implications for risk premia estimates, cross-sectional anomalies, and portfolio construction.

Keywords: Missing data, firm characteristics, PCA, factor model, big data, asset pricing

JEL Classification: C14, C38, C55, G12