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6
votes
4answers
960 views

Using rolling returns in a multivariate linear regression?

I am trying to use fundamental factors such as PE, BV, & CFO in a multivariate linear regression with the response variable being the rolling 1 month returns. But this approach seems flawed as the ...
9
votes
1answer
1k views

Skewness and Kurtosis under aggregation

Returns possess non-zero skewness and excess kurtosis. If these assets are temporally aggregated both will disappear due to the law of large numbers. To be exact, if we assume IID returns skewness ...
3
votes
1answer
2k views

How to annualize skewness and kurtosis based on daily returns

I'm trying to annualize the four moments based on a string of daily returns (continuously compounded) for 11 years. The formulas for the annualization of the mean and the standard deviation I did ...
2
votes
1answer
158 views

How to group mutual funds by volatility?

I want to group Mutual Funds by their volatility. Ideally, I would like to end up with the mutual funds beings attached to different groups: High volatility Medium volatility Low Volatility My ...
6
votes
3answers
744 views

How to calculate compound returns of leveraged ETFs?

Forewarning: this is a complete newbie question :-) I am starting to learn about ETFs by trying to do the numbers. When learning about the compounding effect in leveraged ETFs, I wanted to simulate ...
2
votes
0answers
130 views

Probability Density of Returns of Bonus Certificates

Could anyone please help me with the following? I need to generate a histogram (resp. probability density) of returns of a bonus-certificate. A bonus-certificate can be replicated by an underlying ...
2
votes
1answer
69 views

Accounting for Withdrawals

I am trying to wrap my head around the proper way to do this. I would like to simulate the portfolio value adjusted for inflation with a fixed withdrawal rate. To simulate withdrawal rate, I will ...
1
vote
3answers
1k views

Appropriate method for calculating negative returns on a trading strategy?

I have a cumulative profit/loss time series below for a trading strategy, what is the appropriate way to calculate the returns in percentage for such a series? My issue is the appropriate ...
4
votes
0answers
147 views

Is it more accurate to analyze returns on a calendar day basis than a trading day basis?

I'm rather new to the actual practice of this kind of analysis, but it just seems wrong to me to throw Mondays' returns in with the rest without accounting for the passage of time on the weekend when ...
-3
votes
1answer
138 views

Methods for distributing cash into allocation

Are there any methods/techniques that cover distributing cash into a specific percent of a portfolio asset class while gaining the best average price? As a simple example, a portfolio starts with ...
6
votes
2answers
240 views

How do I statistically differentiate a series of prices from a series of returns?

I developed an optimization algorithm that uses returns (among other parameters) as input and basically output an allocation. As I'm pretty happy with the results, I am in the process of putting the ...
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 ...
-4
votes
1answer
2k views

How to annualize log returns? [closed]

I have daily log return from 01.01.2011 to 10.28.2011 and I'd like to compare the total return of that 10 months period (which is of -7.093%) to annual log returns of previous years. I know it's ...
5
votes
1answer
515 views

Price volatility instead of return volatility for spread option parameter

I overheard someone at work today talking about a commodity spread option pricing model and he was asking our quant if he should use price volatility instead of return volatility as the volatility ...
4
votes
1answer
130 views

What are some common models for one-sided returns?

One typically models the log returns of a portfolio of equities by some unimodal, symmetric (or nearly symmetric) distribution with parameters like the mean and standard deviation estimated by ...
4
votes
1answer
376 views

Should cointegration be tested using close or adjusted close prices?

When doing cointegration tests should I use the adjusted close price or just close price for the time series? The dividend of each stock is on different dates and can cause jumps in the data.
8
votes
2answers
520 views

What is a reasonable upper bound on the performance of a daily trading strategy?

I am backtesting an equity trading strategy which trades only once per day. Is there a general rule of thumb for the reasonable upper bound on the rate of return of such a strategy? For example, a ...
17
votes
2answers
622 views

How do you correct Max Draw-Down for auto-correlation?

When returns are auto-correlated, calculating a Sharpe ratio := $\frac {mean(x)}{\sqrt{var(x)}}$, (where $x$ are the returns) is complicated, but basically solved (see, e.g. Lo (2005)). Without the ...
5
votes
1answer
3k views

Annualzing the log of daily returns riddle

Two popular ways to measure returns are Arithmetic returns and Log returns. Let's define arithmetic (simple period) returns as: P(t) - P(t-1) / P(t-1). Let's define log return as Ln( P(t)/P(t-1) ) or ...
5
votes
3answers
5k views

Correct way to find the mean of annual geometric returns of monthly returns?

Say I'm given I set of monthly returns over 10 years on a monthly basis. What is the correct way to find the geometric returns of this data? I ask because a classmate and I are on different sides of ...
5
votes
2answers
1k views

Quantmod: what's the difference between ROC(Cl(SPY)) and ClCl(SPY)

I feel like I'm missing something fundamental here, but I can't shake the feeling that these two series should be equivalent. /edit: there is also dailyReturn(Cl(SPY)). I've seen all 3 of these ...
-2
votes
1answer
252 views

Convert returns into an index? [closed]

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 ...
4
votes
2answers
263 views

Comparing Returns on a Sector Basis

I'd like to compare the returns of a portfolio segregated by groups to the returns of those groups in total. So say for example I have a portfolio with 40% Industrials and 60% Technology, then over ...