Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/266247 
Year of Publication: 
2010
Citation: 
[Journal:] Journal of Behavioral Finance [ISSN:] 1542-7579 [Volume:] 11 [Issue:] 4 [Publisher:] Taylor & Francis [Place:] London [Year:] 2010 [Pages:] 195-210
Publisher: 
Taylor & Francis, London
Abstract: 
This paper brings to light and discusses a systemic issue in the calculation and display of relative return information as currently seen on some of the most prominent finance websites; income-generating events such as dividends and interest are not included in relative return calculations and all comparative return graphics. The resulting ranking of the securities, based on such incomplete returns, is essentially meaningless from a total return perspective, yet they are being served to millions of investors every day. This could lead to the formation of a possible availability heuristic and an optical bias against fixed-income and other income generating assets. This problem has gone unnoticed for many years with no discussion of the topic either in the academic or practitioner press. The ready availability of such unclear or inaccurate information from sources generally perceived to be credible can, in this age of do-it-yourself portfolio management, have serious and damaging financial consequences to the unsuspecting investor. The paper also shows the effect of this return differential on the calculation of the asset correlation matrices and the subsequent effect on the resulting asset-weight vectors that are used to generate Markowitz style mean-variance portfolios. The visual discrepancies are then supported by the application of the Gibbons, Ross and Shanken [1989] W-test for portfolio efficiency. The authors’ proposed correction, based on elementary finance, fixes the problem.
Subjects: 
internet stock charts
dividend charts
total return with dividends
web charts
Published Version’s DOI: 
Document Type: 
Article
Document Version: 
Manuscript Version (Preprint)
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