Converting true returns into reported returns

a general theory of linear smoothing and anti-smoothing

Michael McKenzie, Stephen Satchell, Warapong Wongwachara

Research output: Contribution to journalArticle


In this paper, we present a unified theory of linear smoothing, which looks at the problem from a time-series perspective. We use the term 'conversion' to refer to generic operations that create a difference between true returns and reported returns. 'Smoothing' occurs when that conversion process leads to a reduction in the variance of the reported returns and we establish the conditions which guarantee smoothing. Most importantly, we discuss situations where 'anti-smoothing' can occur, i.e. reported returns become more volatile than their true counterparts. Finally, we present empirical evidence of the presence of both smoothing and anti-smoothing in returns data for a number of different classes of asset.
Original languageEnglish
Pages (from-to)215-229
Number of pages15
JournalJournal of Empirical Finance
Publication statusPublished - 2014


  • Alternative asset returns
  • Anti-smoothing
  • Appraisal
  • Smoothing
  • Time series

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