Constructing weekly returns based on daily stock market data: A puzzle for empirical research?

The weekly returns of equities are commonly used in the empirical research to avoid the non-synchronicity of daily data. An empirical analysis is used to show that the statistical properties of a weekly stock returns series strongly depend on the method used to construct this series. Three types of weekly returns construction are considered: (i) Wednesday-to-Wednesday, (ii) Friday-to-Friday, and (iii) averaging daily observations within the corresponding week. Considerable distinctions are found between these procedures using data from the S&P500 and DAX stock market indices. Differences occurred in the unit-root tests, identified volatility breaks, unconditional correlations, ARMA-GARCH and DCC MV-GARCH models as well. Our findings provide evidence that the method employed for constructing weekly stock returns can have a decisive effect on the outcomes of empirical studies.