Compustat Selection Bias in Tests of the Sharpe-Lintner-Black CAPM

Posted: 5 Jul 1998

See all articles by Randolph B. Cohen

Randolph B. Cohen

Harvard Business School - Finance Unit

Christopher Polk

London School of Economics

Date Written: October 1995

Abstract

A recent paper of Kothari, Shanken, and Sloan (1995) (KSS) examines the argument of Fama and French (FF) (1992) that, contrary to the Sharpe-Lintner-Black (SLB) model, book-to-market ratio plays an important role in expected asset returns while market beta does not. KSS claim that part of the discrepancy between the FF empirical results and the SLB theory may be caused by bias in the FF study induced by their use of only COMPUSTAT-listed stocks. This paper uses a methodology that enables us to obtain cross-sectional variation in distress level for non-COMPUSTAT as well as COMPUSTAT firms. We find little if any evidence of COMPUSTAT selection bias, and no evidence that any bias that might exist is related to book-to-market ratio.

JEL Classification: G10, G11

Suggested Citation

Cohen, Randolph B. and Polk, Christopher, Compustat Selection Bias in Tests of the Sharpe-Lintner-Black CAPM (October 1995). Available at SSRN: https://ssrn.com/abstract=7095

Randolph B. Cohen

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6674 (Phone)
617-496-6592 (Fax)

Christopher Polk (Contact Author)

London School of Economics ( email )

United Kingdom

HOME PAGE: http://personal.lse.ac.uk/polk/

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