My prof asked me to make an Variance-Ratio test for overlapping as well as for non-overlapping returns.
What is the difference between overlapping and non-overlapping?
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An example of non-overlapping one month returns: the return in January, the return in February, the return in March, etc.
An example of overlapping 30 day returns: the return from January 1 to January 30, the return from January 2 to January 31, the return from January 3 to February 1, the return from January 4 to February 2, and so on.
There are far fewer non-overlapping returns than overlapping returns. The non-overlapping returns are statistically independent of each other, the overlapping are not. If you are going to use overlapping returns you must use specific statistical procedures that are designed to take the dependencies into account.
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$\begingroup$ Thank you very much :)! I know it's a very basic question, but I couldn't find the answer anywhere as simple as you explained. $\endgroup$– KrasnarsNov 19, 2016 at 21:18
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$\begingroup$ But when should use overlapping and when non-overlapping? $\endgroup$ Jul 21, 2017 at 13:34
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$\begingroup$ If we use the last day of each month, would that count as overlapping returns? $\endgroup$ Jan 11, 2021 at 6:36