Take the 2-minute tour ×
Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. It's 100% free, no registration required.

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)?

share|improve this question

closed as off topic by Owe Jessen, Joshua Chance, chrisaycock Mar 27 '11 at 19:30

Questions on Quantitative Finance Stack Exchange are expected to relate to quantitative finance within the scope defined by the community. Consider editing the question or leaving comments for improvement if you believe the question can be reworded to fit within the scope. Read more about reopening questions here.If this question can be reworded to fit the rules in the help center, please edit the question.

    
I voted for a close, since this kind of question apprears to be too simple. –  Owe Jessen Mar 27 '11 at 18:53
    
I agree... voting to close –  Joshua Chance Mar 27 '11 at 19:20
    
I'm not sure what you mean by a "continuous index"; surely you want "cumulative returns". Dollar P&L is added whereas compounded interest is multiplied. You have the latter. Now I'm going to close this for being too basic. –  chrisaycock Mar 27 '11 at 19:30
add comment

1 Answer 1

up vote 3 down vote accepted

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.

share|improve this answer
add comment

Not the answer you're looking for? Browse other questions tagged or ask your own question.