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Constructing weekly returns based on daily stock market data: A puzzle for empirical research?

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  • Baumöhl, Eduard
  • Lyócsa, Štefan

Abstract

The weekly returns of equities are commonly used in the empirical research to avoid the non-synchronicity of daily data. An empirical analysis is used to show that the statistical properties of a weekly stock returns series strongly depend on the method used to construct this series. Three types of weekly returns construction are considered: (i) Wednesday-to-Wednesday, (ii) Friday-to-Friday, and (iii) averaging daily observations within the corresponding week. Considerable distinctions are found between these procedures using data from the S&P500 and DAX stock market indices. Differences occurred in the unit-root tests, identified volatility breaks, unconditional correlations, ARMA-GARCH and DCC MV-GARCH models as well. Our findings provide evidence that the method employed for constructing weekly stock returns can have a decisive effect on the outcomes of empirical studies.

Suggested Citation

  • Baumöhl, Eduard & Lyócsa, Štefan, 2012. "Constructing weekly returns based on daily stock market data: A puzzle for empirical research?," MPRA Paper 43431, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:43431
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    References listed on IDEAS

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    Cited by:

    1. Eduard Baum??hl & ??tefan Ly??csa, 2014. "How smooth is the stock market integration of CEE-3?," William Davidson Institute Working Papers Series wp1079, William Davidson Institute at the University of Michigan.
    2. Výrost, Tomáš & Lyócsa, Štefan & Baumöhl, Eduard, 2015. "Granger causality stock market networks: Temporal proximity and preferential attachment," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 427(C), pages 262-276.
    3. Výrost, Tomáš, 2012. "Country effects in CEE3 stock market networks: a preliminary study," MPRA Paper 43481, University Library of Munich, Germany.
    4. Akhtaruzzaman, Md & Boubaker, Sabri & Umar, Zaghum, 2022. "COVID–19 media coverage and ESG leader indices," Finance Research Letters, Elsevier, vol. 45(C).

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    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General

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