Missing Financial Data

Bryzgalova, S, Lerner, S, Lettau, M and Pelger, M (2024) Missing Financial Data. Review of Financial Studies. ISSN 0893-9454 (In Press)

Abstract

We document the widespread nature and structure of missing observations of firm fundamentals and show how to systematically handle them. Missing financial data affects more than 70% of firms that represent about half of the total market cap. Firm fundamentals have complex systematic missing patterns, invalidating traditional approaches to imputation. We propose a novel imputation method to obtain a fully observed panel of firm fundamentals that exploits both time-series and cross-sectional dependency of data to impute missing values and allows for general systematic patterns of missingness. We document important implications for risk premiums estimates, cross-sectional anomalies, and portfolio construction.