The Delisting Bias in CRSP Data

Abstract

I document a delisting bias in the stock return data base maintained by the Center for Research in Security Prices (CRSP). I find that delists for bankruptcy and other negative reasons are generally surprises and that correct delisting returns are not available for most of the stocks that have been delisted for negative reasons since 1962. Using over‐the‐counter price data, I show that the omitted delisting returns are large. Implications of the bias are discussed.

What Drives Firm-Level Stock Returns?

“…3 The delisting-return assumptions follow Shumway's (1997) results. Shumway tracks a sample of firms whose delisting returns are missing from CRSP and finds that performance-related delistings are associated with a significant negative return, on average approximately -30 %.…”

Have We Solved the Idiosyncratic Volatility Puzzle?

“…Monthly returns are adjusted for delisting following Shumway (1997). To be included in the analysis, we require a firm to have non-missing values for size and book-to-market equity (B/M), where Size is the most recent June-end market cap of the firm and B/M is computed according to Fama and French (2006).…”

How Value–Glamour Investors Use Financial Information: UK Evidence of Investor’s Confirmation Bias

“…The existing literature often emphasizes the importance of treating delisting returns, especially in studies on market anomalies (Shumway, 1997;Beaver et al, 2007). Shumway (1997) finds that delisting returns are commonly missed by the CRSP database for stocks that are delisted due to performance-related reasons.…”

“…However, such approach is obviously inappropriate because the consequences of a performance-related delisting are clearly different from a delisting due to merger or acquisition. Shumway (1997) suggests that for the US market, if a delisting return is missing, rather than excluding the stock, a replacement value of -30% should be used if the delisting is performance-related, or zero otherwise. To illustrate the important sensitivity of tests of market efficiency to the treatment of delisting returns, Shumway and Warther (1999 ) find that, among NASDAQ stocks, the size effect disappears if performance-related delisting returns are properly treated.…”