The Delisting Bias in Crsp's NASDAQ Data and its Implications for Interpretation of the Size Effect

We investigate the bias in CRSP data due to missing returns for many of the stocks delisted from Nasdaq. We find that missing returns are far more common when the delisting is for reasons of poor performance, and we find the missing returns to be large and negative on average. This implies a bias for studies using Nasdaq data which is 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 percent wherever a performance-related delisting return is missing will correct the bias. We revisit previous work which finds a size effect in Nasdaq data and find that when the data are corrected for the delisting bias, the evidence for a size effect in Nasdaq data disappears