Choosing Monthly Prices for CAPM Return Calculation

Summary

This short discussion addresses whether monthly CAPM returns should use prices recorded at the start or end of each month. It describes the common practice of calculating simple returns from consecutive month-end closing prices, or log returns from the ratio of those same closes. In this setup, each return measures the change between the prior month’s close and the current month’s close.

The responses say end-of-period observations are the usual choice, while consistency matters more than choosing one timestamp over the other. A month-end value will also be very close to the next period’s beginning value in ordinary consecutive price series. The exchange provides a practical convention rather than empirical comparisons or a detailed treatment of data alignment, market holidays, or CAPM estimation choices; users should apply the same timing rule across the assets and benchmark in the model.

Key ideas

• Monthly CAPM returns are commonly calculated from consecutive month-end closing prices.
• Simple returns use the price change relative to the prior period's close.
• Log returns use the logarithm of the ratio of consecutive closing prices.
• Consistent price timing across series is more important than selecting start or end labels.

Tags

# CAPM - Do I use start or end of period prices?


# CAPM - Do I use start or end of period prices?












If I use monthly price data in the standard CAPM, should I take the price at the beginning or the end of the month? What is the convention? Or does it not matter? Is there any literature that deals explicitly with this subject?

Thank you

## Answer by Christian S. (score 1)

https://quant.stackexchange.com/a/26039

The most common approach is to calculate returns as $r_t=\frac{p_t-p_{t-1}}{p_{t-1}}$ or $r_t=ln\left (\frac{p_t}{p_{t-1}}\right)$ using close prices at the end of the month.

## Answer by Tim  (score 0)

https://quant.stackexchange.com/a/26077

It's most common to use end of the period figures. However, it should not matter as long as you're consequent. Further, the end of period metric will be very similar to the measure at the beginning of the next period.

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