Tagged Questions

The asset rate of returns is the profit on a particular investment; it includes any change in the asset value, interest, commission or dividends and so, all other cash-flows which an investors receive or pays due to the investment.

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Pair trading based on cointegration - equity line

I'm preparing a project at my Uni where I have to make a simple pair trading strategy using cointegration between two stocks. I'm stuck on the equity line calculation. I have prepared opening and ...
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Can Gaussianity of returns depend on the time frame?

I would be interested in knowing if the fact that returns are Gaussian is disproved on all time frames, or if, for example, the 5 minute intra-day time frame could exhibits Gaussian returns assuming ...
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Exponential weighting of returns

I am looking for a procedure to compute an exponential weighting of returns given a half life parameter. I ran accross a wikipedia article, can I take it unchanged an assume N(t) is the return at ...
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How to calculate equally weighted market portfolio

There's two studies that test the same thing in different markets (i.e. they apply the identical methodology). They state: 1) "$R_{mt}$ is the equally weighted average stock return in the dual-listed ...
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De-annualizing a target alpha return

apologies if this is not the correct place for this type of question, but I just want to confirm if the following de-annualization is correct. if a manager states that he will earn 200 bps of target ...
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Why do we usually model returns and not prices?

I think this is a quite similar question for most of you, however it is not completely understandable for me at the moment: Why do we usually use returns and not prices to model financial data in ...
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Standardized Abnormal Returns

I have a question. In an event study, I have found a standardized cumulative abnormal return Z test formula. It is attached. I couldn't find any sources to prove it. Do you know any articles about ...
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Geometric Returns values less than -100%

I am trying to find the geometric return for semi-annual log-returns in Excel. However, I do not know how to handle values less than -100%.... ...
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Comparing the return of different roll strategies

I am interested in calculating the effect of the roll return using different roll strategies. In specific I want to mimic a long-only futures investments. I have historical data for several ...
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Log returns and GARCH models

I try to model currency rates volatility using GARCH models through the RUGARCH package in R. Starting from the observed currency rate series, I compute the log-return through: ...
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Using central limit theorem to test whether population average return is the same, before and after the recession

This is the task I have been asked to do. I've read up on what central limit theorem (clt) is, but I feel like I'm missing something. The data I have is a matrix of monthly stock returns from 50 ...
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Can you use a t-test on bootstrapped Value at Risk (VaR) figures?

I need to compare VaR before and after the recession. I have a series of market returns for a period before, and a series of market returns for the period immediately after. Both have been ...
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Is the value also log-normally distributed?

My book assumes many times that $log(1+R)$ is normally distributed, so R is log-normal. But does this also mean that the value process is log-normal? Since $V=V_0(1+R)\rightarrow V/V_0=1+R$, and since ...
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Testing the validity of a factor model for stock returns

Consider the following m regression equation system: $$r^i = X^i \beta^i + \epsilon^i \;\;\; \text{for} \;i=1,2,3,..,n$$ where $r^i$ is a $(T\times 1)$ vector of the T observations of the dependent ...
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How to annualise the volatility of non-iid returns?

I have a series of monthly log-returns; let's assume the log-returns are normally distributed, but exhibit significant serial correlation. In the case of normal, i.i.d. returns, I can annualize the ...
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How consequential are violations of the efficient diversification assumption of asset pricing models?

When using asset pricing models such as the CAPM or the Fama-French four factor model to determine the risk-adjusted return of a portfolio, does this strictly require efficient diversification of the ...
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dynamic programming with serially independent returns

Book suggests that "asset returns are assumed to be serially independent, so wealth is a single state connecting one period to the next". I understand path dependency is lost in case of serial ...
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Event studies using revenue data vs. measuring abnormal returns

This may be a silly question, but does there exist a methodology for examining the impact of "events" on companies that are not publicly traded? I suppose it would look at abnormal revenues rather ...
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Index creation from multiple time-series and variable weights

I am trying to compose one index out of several (three) indices with variable weights, 50%, 25% and 25%. After normalizing and calculating the log returns, what would be the best way to create the ...
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How to model the effect of earnings surprises on long-term returns?

I'm looking into modeling the relationship between EPS announcement surprises with long-term returns (1 quarter to 3 years with intervals). I've based my current methodology off papers looking at the ...
I intend to calculate the daily return on my investment in forex. Assume a trader invests \$\$$40 at a leverage of 100:1, so in total he is trading \$$4000 worth of currency, and assume the position ...