I. Introduction A FREQUENT PROBLEM IN the analysis of f m â financial time series is the need to impose survivorship criteria and the difficulty of determining their effects. Survivorship criteria usually are imposed in order to obtain sufficient observations for estimation purposes. But realizations of financial time series are unlikely to be independent of whether fmsurvive. Thus, the requirement of a long series for estimation purposes could result in an unrepresentative set of firmsâ series, and inferences concerning population characteristics could be biased. In our study [I] of the time series firmsâ annual earnings, we required sample members to have twenty consecutive years of earnings data. This required all sample members to have survived for at least twenty years, which would have reduced the likelihood of firms with poor earnings performance entering the sample. An additional and more subtle bias arose because of the criteria imposed by Standard and Poorâs when they constructed the Compustat file, which we used in that study. Their sample was selected essentially on the grounds that firms were of interest to security analysts, who were the likely market for the file, at the time of its construction. The file was then constructed
The Journal of Finance – Wiley
Published: Mar 1, 1979
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