Holding Period Return-Risk Modeling: Ambiguity in Estimation
- Tags:
- Equity,
- Finance,
- Financial Services,
- Investment,
- Period
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Overview: In this paper we explore the theoretical and empirical problems of estimating average (excess) return and risk of US equities over various holding periods and sample periods. The findings are relevant for performance evaluation, for estimating the historical equity risk premium, and for investment simulation. Using a unique set of US equity data series, comprising monthly prices and dividends based on consistent definitions over the 132 year period 1871-2002, it is investigated that the complex effect of temporal return aggregation and sample estimation error. The major finding is that holding period risk and return statistics show an extraordinary sensitivity to the choice of the starting point in calendar time. This is yet another way in which stock price seasonally manifests itself, but this ambiguity in the underlying estimation process seems completely neglected in the current literature.
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Format: PDF | Size: 84KB | Date: Sep 2003 | Pages: 18
