Biases in decomposing holding-period portfolio returns

Weimin Liu, Norman Strong

Research output: Journal PublicationArticlepeer-review

69 Citations (Scopus)


A growing number of studies in finance decompose multiperiod portfolio returns into a series of single-period returns, using these to test asset pricing models or market efficiency or to evaluate the returns to investment strategies such as those based on momentum, size, and value-growth. We provide a formal analysis of the decomposition method. Crucially, we argue and present empirical evidence that some methods researchers use involve portfolios that nobody would seriously consider ex ante, that transactions costs associated with such portfolios make them poor investment vehicles, and that they can lead to spurious statistical inferences.

Original languageEnglish
Pages (from-to)2243-2274
Number of pages32
JournalReview of Financial Studies
Issue number5
Publication statusPublished - Sept 2008
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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