The Delisting Bias in CRSP's Nasdaq Data and its
Implications for the Size Effect

Tyler Shumway and Vincent A. Warther


We investigate the bias in CRSP data due to missing returns for many stocks delisted from Nasdaq. We find that missing returns are far more common when the delisting is for reasons of poor performance, that the missing returns are large and negative on average, and that delisted stocks undergo a large decrease in liquidity. This implies a bias for studies using Nasdaq data 4.7 times larger than the delisting bias previously documented for CRSP's NYSE/AMEX data. We estimate that using a corrected return of $-55\%$ for missing performance-related delisting returns will correct the bias.

We revisit previous work which found a size effect in the Nasdaq data and find that, after correcting for the delisting bias, there is no evidence that there was ever a size effect among Nasdaq stocks. Since small Nasdaq stocks are both the smallest and the most distressed stocks for which we have reliable data, our results are not consistent with most risk-based explanations of the size effect.

This paper was published in the Journal of Finance in December, 1999 (Volume 54, pages 2361-2379).

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