Biases in Computed Returns: An Application to the Size Effect (Revision of 2-83)

Marshall Blume and Robert Stambaugh

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: Previous estimates of a "size effect" based on daily returns data are biased. Several properties of quoted closing prices impart an upward bias to computed returns on individual stocks. Returns computed for buy-and-hold portfolios largely avoid the bias induced by closing prices. Based on such buy-and-hold returns, the full-year size effect is half as large as previously reported, and all of the full-year effect is, on average, due to the month of January.

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