Origins of the CRSP; what about that 1926 starting point?
Posted: Sun Feb 10, 2013 9:15 pm
Justin Fox's "The Myth of the Rational Investor" has an interesting story about the origin of the CRSP that makes me wonder about the neutrality of that 1926 starting point. It appears that the CRSP might have been conceived in sin, as it were. It was launched specifically because in 1959 Louis Engel of Merrill Lynch wanted to run an ad, and the SEC said he couldn't because he didn't have the evidence to back up his claims. The CRSP was founded specifically to provide that evidence. The study was funded, and the ad using CRSP data duly ran on July 2nd, 1964 in the Wall Street Journal.
The question that arises in my mind is: how exactly was 1926 chosen? It is said that it was chosen so as to include at least one full business cycle, but I have to wonder about the possibility of some unconscious cherry-picking in there in order to give Merrill Lynch the results they wanted. Even over a period of 40 years, it would have made quite a difference whether the starting point was the start of 1926 or, say, 1929.
Chicago Booth magazine says "In 1959, associate dean James Lorie fielded an intriguing call from Louis Engel, a vice president at Merrill Lynch, Pierce, Fenner & Smith. The firm wanted to advertise how well people had done investing in common stocks, but Engel needed solid data and wanted Booth faculty to help collect it," omitting only the detail about the SEC. The CRSP itself has an article about Engel from which I got this page image (alas, not high enough resolution to read much more than the title).
The question that arises in my mind is: how exactly was 1926 chosen? It is said that it was chosen so as to include at least one full business cycle, but I have to wonder about the possibility of some unconscious cherry-picking in there in order to give Merrill Lynch the results they wanted. Even over a period of 40 years, it would have made quite a difference whether the starting point was the start of 1926 or, say, 1929.
Chicago Booth magazine says "In 1959, associate dean James Lorie fielded an intriguing call from Louis Engel, a vice president at Merrill Lynch, Pierce, Fenner & Smith. The firm wanted to advertise how well people had done investing in common stocks, but Engel needed solid data and wanted Booth faculty to help collect it," omitting only the detail about the SEC. The CRSP itself has an article about Engel from which I got this page image (alas, not high enough resolution to read much more than the title).