New answers tagged returns
You can do a couple of things: The easiest way to calculate your quarterly Jensen's alphas is achieved by calculating quarterly returns and then applying the regression method you have done before. Alternatively, your Jensen's alpha represents the abnormal monthly return over a benchmark. Therefore, your quarterly Jensen's alpha can be calculated by ...
In my opinion previous answers are a bit off goal. The CAPM is, at least in your primarily role, an equilibrium model. Is shared opinion that the investors are "risk adverse"and, as a consequence, the risk premium $R_m - R_f$ cannot be negative, but strictly positive. If your target is estimate the risk premium you are not constrained to use the data in ...
To expand on my comment, consider the following R code: set.seed(1) returns <- runif(1000, 0.95,1.055) #Extremely simple return generation with a slight drift. plot(cumprod(returns), type = "l") lines(cumsum(returns-1)+1, col = "blue") Which gives the following result: As you can see the effect is not linear, as the difference nearly disappears ...
If the dataset contains arithmetic returns where 1+r(i)= S(i)/S(i-1) then you are correct. If the dataset contains logarithmically defined returns where r(i) = log (S(i)/S(i-1)) then your friend is correct.
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