nisiprius wrote: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).
Methinks the lady doth protest too much; the prompt dissemination of those results to retail investors via the medium of a Merrill Lynch ad is not quite consistent with the CRSP's "sole purpose." I haven't found a high-res image of the newspaper ad, but if you squint at table 1 from the paper below, and the ad above, it sure looks as if the 1965 Merrill Lynch ad reproduced this and two other tables from the paper. That is, there was a direct connection between paper and ad.The sole purpose of the Centerfor Research in Security Prices is to conduct research and to disseminate the results throughout the academic and financial communities.This is what Merrill Lynch, Pierce, Fenner & Smith Inc. had in mind when they provided the funds to establish the Center, and this is what the Graduate School of Business had in mind when it sought support.
The periods were chosen for obvious reasons. The period from 1926 to 1960 is a long span with booms and depressions--prime examples of each!--and war and peace. The periods beginning in September, 1929 were included to indicate the experience of those who invested at the height of the stock-market boom of the 1920s. The periods beginning in June, 1932 were included to show the results of investing at the nadir of this country's worst depression. The numerous brief, recent periods were included to bring details of postwar experience into sharp focus. Aside from most periods ending in 1932 or 1940, the rates of return are surprisingly high...
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