RDP 9802: Systematic Risk Characteristics of Corporate Equity Data Appendix

All firm related data is drawn from the CRSP database. The market index is the value-weighted return including all distributions (labelled VWRETD). Individual firms' returns, RET(t), also include all distributions such as dividends. Prices are captured using the absolute value of the price series labelled by PRC. Note that zeros, when no price is observed, are replaced by the mean of the next observations on either side. Also, the absolute value of the price is used because negative values are introduced to signal whenever the closing price is the mean of the bid ask spread rather than an actual trading price. The number of shares outstanding is obtained from the series labelled by CURSHR. The Standard Industry Classification (SIC) uses the SICCD code applicable for each month.

The US three-month treasury bill rate is used as an approximation to the risk-free rate of return because it is available at a monthly frequency back to 1934. Before that date, it has had to be approximated by assuming no change in the risk-free rate until the first available observation in 1934. This assumption is fairly reasonable, in the context of this research, because interest rates on short maturity debt issues in the US between 1925 and 1934 were extremely low. For the purposes of estimating betas for excess rates of return on equity, the variations in these rates is of secondary importance compared to the variation in the raw equity returns. See Banz (1981, p. 7) for discussion of these issues.