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-2
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0answers
22 views

Expected return [on hold]

You are given the information below about daily stock prices and market prices. Risk free rate of 4%, calculate the expected return and standard deviation for Stock A and B, calculate the expected ...
2
votes
1answer
147 views

Call option on a Mutual Fund

I am trying to price a call option on a mutual fund. Given the lack of market implied data, I am going to estimate the fund´s expected volatility using as a reference its historical volatility ...
3
votes
0answers
38 views

Characterizing relation “ has no less information than” between information systems represented by Markovian matrices

I crossposted this question on math.stackexchange. Background: Suppose that an investor's utility is both determined by the state and her action taken. A fact of life is that she can't observe the ...
2
votes
0answers
95 views

Correlation between idiosyncratic residuals and forward returns

The classic mean-reversion strategy is to calculate an "expected return" (alpha) by computing the raw return for each security and then remove the part which you think is market driven. Statistically ...
1
vote
0answers
87 views

How to estimate market integration parameter in Singer-Terhaar model for E(r)?

Singer-Terhaar is part of CFA II and III curriculum. It estimates risk premium for some asset, traded at some local market, as weighted average of expected premiums for the case of (1) local market, ...
14
votes
5answers
2k views

What methods do you use to improve expected return estimates when constructing a portfolio in a mean-variance framework?

One of the main problems when trying to apply mean-variance portfolio optimization in practice is its high input sensitivity. As can be seen in (Chopra, 1993) using historical values to estimate ...
7
votes
0answers
126 views

Portfolios from Sorts

Some time ago Almgren and Chriss proposed a method for portfolio optimization based on sorting criteria such as $r_1 > r_2 >... > r_N$ instead of explicit expected returns: see portfolios ...
0
votes
0answers
146 views

what is a reasonable beta in CAPM?

I want to predict expected returns for assets using a CAPM, to calculate unexpected (unpredictable, idiosyncratic, non-systemic) returns in portfolios. My CAPM estimated on monthly total gross ...
10
votes
3answers
680 views

What is the expected return I should use for the momentum strategy in MV optimization framework?

As all research on the momentum strategies are focused on the indicator, i.e. the entry point, there seems not much discussion on its expected return? Though there are some discussions on the exit ...
8
votes
2answers
176 views

St Petersburg lottery pricing & short investing horizons

I am a statistician (no solid background in finance). Please forward me to a book \ chapter \ paper to resolve the following general question. Suppose we have a stock with the following monthly return ...
0
votes
0answers
40 views

Inferring Returns From Minimal Data Points [duplicate]

Possible Duplicate: How much data is needed to validate a short-horizon trading strategy? Suppose I have daily returns for a trading strategy against one month of data. Before starting ...
0
votes
3answers
859 views

How to model the daily return using intraday data?

Say, I have hourly returns $r_1,r_2,...,r_T$, where $r_t$ = $ln(p_t)$ - $ln(p_0)$ for $t = 1...T$. So what is the value of $E[r_t]$? Would $r_T$ be the $\prod{(r_t)}$? Basically $r_t$s are the ...
8
votes
1answer
1k views

How to apply the Kelly criterion when expected return may be negative?

My concern is how to handle a negative value for the Kelly formula. Even when you have a system that has positive expectancy, you can (and usually will) sustain a number of losses, sometimes ...
17
votes
2answers
624 views

How are distributions for tail risk measures estimated in practice?

Let's say you want to calculate a VaR for a portfolio of 1000 stocks. You're really only interested in the left tail, so do you use the whole set of returns to estimate mean, variance, skew, and shape ...
11
votes
2answers
3k views

How does left tail risk differ from right tail risk?

How does left tail risk differ from right tail risk? In what context would an analyst use these metrics?
7
votes
1answer
715 views

Expected return from a multiple linear regression?

How can I compute the predicted return from a linear regression that includes a number of different terms. For instance, suppose my equation is: $r_{future} = \alpha + \beta_1 r_{history} + \beta_2 ...
7
votes
2answers
1k views

How does return-based analysis calculate expected return of a trading system?

Suppose you have a trading system that is never flat, but either long or short the market. You have four years of performance. During that period, your system changed its position 10 times. So you ...