Skip to main content

What Is Wrong with this Picture? A Problem with Comparative Return Plots on Finance Websites and a Bias Against Income-Generating Assets

Buy Article:

$55.00 plus tax (Refund Policy)

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.
No Reference information available - sign in for access.
No Citation information available - sign in for access.
No Supplementary Data.
No Data/Media
No Metrics

Keywords: Comparative return charting; Dividends; Finance websites; Portfolio efficiency; Total returns

Document Type: Research Article

Affiliations: University of Maine,

Publication date: 2010-10-01

  • Access Key
  • Free content
  • Partial Free content
  • New content
  • Open access content
  • Partial Open access content
  • Subscribed content
  • Partial Subscribed content
  • Free trial content
Cookie Policy
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more