# 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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### Fitting (marginal/multivariate) distributions to financial return data

I have calculated the simple arithmetic return on a number of different financial securities and am fitting both a Student-T and Generalised Pareto Distribution. My question is can I just use the ...
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### Multiperiod return formulae with dividends

I have a question about returns when dividends are 'paid'. Firstly, will write down some definitions: Let $P_t$ be the price of an asset at time t. Assuming no dividends the net return over the ...
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### Stats and Hedge Ratio calculation questions

I did self-study and learnt some concepts to build a multiple leg spread /portfolio for trading but still confuse in some basic concepts. I will be very thankful if you can answer my couple of ...
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### How to calculate returns and sharpe ratio for futures?

What is the industry standard way to calculate returns, which will be used to calculate sharpe ratio for e-mini S&P500?
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### Relationship between yield spread and stock returns

I would like to ask the following question: Do yield spreads generally have a relationship with stock market indices like the S&P 500? If so, what kind of relationship? I have looked at numerous ...
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### How to calculate annualised tracking error?

I have 36 months of relative returns and I need to calculate the annualised tracking error. So, using 36 months of returns is it simply like below: ...
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### Determining significant difference between to return series

I want to analyse whether two return series are different. I was told to run the following regression: ...
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### What is the logic behind this backtesting code in R

I am new to R and I have found this simple backtesting code and can you explain me what is happening here. ...
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### Poor investment preformance in early years impacting on final fund value

I am currently doing some work on the performance of funds across different models of the economy. I am trying to find some work that looks at the impact of poor/lower returns at the early years of ...
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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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### Geometric Variance

If the arithmetic mean is: $\frac { \Sigma (x_i) }{n}$ and the geometric mean is $(\prod (1+x_i) ) ^{1/n}$ The arithmetic variance is $\frac { \Sigma(x_i-\mu)^2 } {n}$ then what is the ...
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### What is the relationship between arithmetic versus geometric averages and simple versus logarithmic prices?

I know that the geometric mean is used in order to make percentage returns across time comparable. Similarly, I know that log prices make percentage returns comparable for example when prices are ...
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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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### 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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### 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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### 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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### 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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### 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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### 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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### 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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### 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 ...
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### How to calculate returns of backtested strategy?

Lets say I have some strategy (long/short) backtested for certain period. Strategy has entries/exits only at the end of the day and may have overnight positions hold. Now I would like to compare ...
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### Calculate bond returns from yields

I have to construct and evaluate portfolio of bonds and stocks, namely I need to get return on portfolio, standard deviation and sharpe ratios. I have weekly data that contains stock prices, and I ...
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### How do Return.portfolio and Return.rebalancing work in Performance Analytics in R?

I have a question about the function Return.portfolio/Return.rebalancing from the Performance Analytics package in R. I take ...