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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52 views

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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61 views

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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129 views

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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37 views

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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1answer
460 views

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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51 views

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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177 views

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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31 views

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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200 views

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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207 views

Carry Trade vs synthetic Carry Trade using forward contracts

When it comes to foreign exchange carry trade strategy, the definition is straightforward: an investor borrows 1 USD in the US (low interest country) and invests that $1 to AU (high interest country). ...
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80 views

What P&L netting should one use when a strategy has trades in two different geographic locations?

I am familiar with the FIFO methodology of netting buys and sells to obtain a realized P&L and outstanding position. Suppose there's a strategy which runs in two different places A, and B and ...
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1answer
200 views

French Data from daily to monthly returns

Ken French on his website publishes daily, monthly and yearly returns for the Fama-French 3 Factors model which are excess market (Rm-Rf), small-minus-big (SMB) and high-minus-low (HML) returns. I ...
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105 views

Comparing a money-weighted return of my own portfolio with a benchmark ETF/other portfolio that is subject to the same cashflows

I am able to calculate the money-weighted return (XIRR equivalent in Excel) of my portfolio. Whilst I can compare this with ‘headline’ returns of ETF’s, Mutual Funds etc, I want to isolate the timing ...
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89 views

Does heteroskedasticity of returns depend on the time frame?

Similarly to my last question, for which I obtained very interesting and useful answers, I would like to know if there has been any study regarding heteroskedasticity and time-frames of the returns. ...
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244 views

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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2answers
125 views

Portfolio Return Contribution by Sectors

I have a table containing the following fields: Date, PortfolioReturn, CashReturn, Sector1Return,...,Sector10Returns 'PortfolioReturn' is the sum of CashReturn + return contributed from 10 market ...
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1answer
25 views

Calculating the rate of return over a year then the data for a year before does not exist

I am trying to find the growth rate of a stock over a given year. Let's say I wanted to find the growth rate from today, June 11, 2015 to June 11, 2014. This is easy enough when you have perfect ...
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1answer
15 views

Measure difference between estimations and historic returns

For every day in a year, I have the return on an asset and the CAPM estimation for the return. I want to measure the average difference between the set of returns and set of estimations. So far, I ...
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1answer
89 views

Apply CAPM using returns on a foreign currency as the market returns

I want to analize Bitcoin returns using the CAPM. I was thinking if it makes sense to compare returns of (BTC/USD) against (EUR/USD), taking the latter as the market returns. However, since EUR is ...
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1answer
76 views

importing columns of returns data into python from excel/csv [closed]

I'm fairly new to the quant finance space, and I was hoping to get some guidance. Say I have a csv/excel file with columns of daily returns data for various asset classes or securities (one column per ...
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2answers
73 views

returns of Bonds and exchange rates

which are the best distributions in order to model the bonds and exchange rate returns distributions. I am searching for a distribution such as the log-normal one of the stocks ( N(m-0.5*v),Sqrt[v])
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53 views

Regressing NYSE returns: Lagged intercept term & efficient market hypothesis

By performing the following OLS time series regression, $y_t$ = $\beta_0$ + $\beta_1$*$y_{t-1}$ + $\beta_0$*$y_{t-1}^2$ + $\epsilon$ I cannot reject the null hypothesis that b1=b2=0. However, ...
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69 views

How to deal with missing returns when creating value (equal) weighted returns

recently I am doing cross sectional regressions, and getting confused about missing returns. Suppose we have 100 stocks, then we want to construct a value weighted return (or equal weighted return). ...
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75 views

Confused on interpretation of betas/alphas in regression in finance

I ran a regression on two stocks. I don't have the data in front of me, but it is a more conceptual question. Let's say SP500 returned a total 23% return over this time period and MSFT returned 9%...
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69 views

Calculating Asset Returns

The question pertains to a simple phenomenon. There is gold futures listed on Exchange A and Exchange B. Exchange A and Exchange B overlap times with A and B starting 8 hours later and A and B ...
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173 views

On an application of Ito's lemma

Assume that instantaneous returns are generated by the continuous time martingale: $$dp_t = \sigma_t dW_t$$ where $W_t$ denotes a standard Weiner process and One day returns are denoted by $r_{t+1} =...
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199 views

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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91 views

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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59 views

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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1answer
54 views

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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638 views

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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57 views

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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1answer
216 views

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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1answer
77 views

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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73 views

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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196 views

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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561 views

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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66 views

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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21 views

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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1answer
76 views

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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1answer
130 views

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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1answer
113 views

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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423 views

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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3answers
670 views

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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2answers
354 views

Problem when calculating the daily return on a forex trade, what is the best way to do such a calculation?

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 ...
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1answer
248 views

Predicting stock returns - in a panel data specification or by using portfolio formation strategies?

I'm working on an empirical analysis where I try to predict stock returns using weekly data. Ideally, I would like to use a panel data model like the following: $$ Y_{it}=X_{it}'\beta+\varepsilon_{it}...
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2k views

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 ...
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292 views

How to classify stocks by their volatility?

I would like to hear other possible ways of classifying Stocks by the Volatility of their returns. Assuming that I want to characterize each stock as Low, Medium or High Volatility Stock and assuming ...
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1k views

Correlation between S&P500 returns and 10y US Treasuries yields

I'd like to investigate the comovement of stock index returns with bond yields but I don't know which return's duration to use (1-year, 1-month or anything else) to get a better view of the ...