What's the right way to take a series of returns and convert it into a continuous index? Let's say I want to show the performance of a strategy starting from 1, and adding on returns so that I get an equity curve, should I be using
cumsum(1 + returns) or
cumprod(1 + returns)?
closed as off topic by Owe Jessen, Joshua Chance, chrisaycock♦ Mar 27 '11 at 19:30
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It should be cumprod. Say you have an index of 0.7, and a daily return of -10%. The new index should be 0.63, not 0.6.