Non-representative trading frequencies and the detection of abnormal performance

Non-representative trading frequencies and the detection of abnormal performance

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Article ID: iaor201522864
Volume: 9
Issue: 4
Start Page Number: 343
End Page Number: 348
Publication Date: Dec 1986
Journal: Journal of Financial Research
Authors:
Keywords: investment, statistics: empirical, simulation
Abstract:

Numerous studies employ betas computed with the ordinary least squares technique and daily returns. However, betas computed with OLS and daily returns are biased and inconsistent due to nonsynchronous trading periods or differences in trading frequency. The purpose of this study is to evaluate the effect of trading frequency on event studies. Brown and Warner (1985) investigated this and several other problems associated with daily returns and found no effect. However, they did not analyze the trading frequencies of the securities in their sample. This study uses a computer simulation for which trading frequency is an input, and, thus, tests stocks with known trading frequency.

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