The Center for Research in Security Prices (CRSP), located in the center of the Chicago financial district, is an integral part of the University of Chicago’s Booth School of Business. Chicago Booth is renowned for cutting-edge financial and economic research.
Founded in 1894, Chicago Booth became an important resource for other academic institutions and corporations. Industry leaders often partnered with the school to explore and develop new ideas. One of these was Louis Engel, vice president at the firm then known as Merrill Lynch, Pierce, Fenner & Smith. In 1959, he inquired of Professor James H. Lorie (Ph.D. 1947; Associate Dean 1956; Professor of Business Administration) as to whether investment performance in the stock market relative to other types of investments had been analyzed. Such an analysis was not feasible as no comprehensive stock market database was available at the time.
Professor Lorie proposed that Merrill Lynch provide funds for a project with the purpose of constructing the stock database. The work would involve gathering, cleaning, and including the prices, dividends, and rates of return of all stocks listed and trading on the NYSE since 1926. The work would also include calculating rates of returns for those same stocks. Thus with a grant of $ 300,000 from Merrill Lynch, the Center for Research in Security Prices (CRSP) was established in 1960.
The new capabilities offered by computers allowed the maintenance of accurate securities information over time, once the original set of data had been collected manually. Researchers could conduct analyses pertinent to their projects with a complete and accurate database. Professors Lorie and Lawrence Fisher (former Associate Professor of Finance, Associate Director of CRSP and the originator of the structure of the CRSP Master File) collaborated on collecting and researching the accuracy of each piece of stock data. The stock market database, which was completed in 1964, was estimated to contain between two and three million pieces of information.
Although the project didn’t answer Mr. Engel’s original question, it did allow for the average rate of return to be measured for the first time. Professors Lorie and Fisher subsequently published an article in the Journal of Business that stated the average rate of return on common stocks listed on the NYSE was 9 percent.
CRSP has continued to expand its product line after developing the original database. In 1984 CRSP added data from the NASDAQ markets (from December 1972). In the mid 90’s the only complete database available containing active and inactive mutual funds was created by Mark M. Carhart, currently at Goldman Sachs Asset Management. In 2005 CRSP released the CRSP/Ziman Real Estate Data Series together with the Ziman Center at the Anderson School of Business of the University of California at Los Angeles. CRSP released the Pre62 database in early 2006, which contains daily data from 1926 - 1962. Previously only monthly data was available for this time period.
CRSP files provide a strong foundation for economic forecasting, stock market research, and financial analyses to academic institutions, investment banks, brokerage firms, corporations, banks, and government agencies. Eighty percent of academic research in stock market and investment analysis uses CRSP data as a source due to the completeness and accuracy of the information.
Rex A. Sinquefield, chief investment officer and co-chair of Dimensional Fund Advisors, Inc. "The entire field of finance has been changed and developed through that database. And how appropriate it is that it happened at the University of Chicago, a university that was set up as a research university and known since day one in 1892 as one committed to empiricism."