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I backtested an investment strategy over ten years (521 weeks to be specific) and calculated the weekly return using log returns. The sum of all weekly returns added up to 145%. How do I annualize this return? Is my assumption correct to simply calculate: (145/521)*52 to get the annual return?

Thanks for your help

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  • $\begingroup$ Is it bonds or stocks? If there is no compounding, then I think it should be correct your way. Also if its log returns, you need to sum them and take expectation of them. That will give you the usual 1+R return. As in if you went from 100 to 105, you get 1.05. $\endgroup$ – Jan Sila Jul 28 '16 at 9:22
  • $\begingroup$ They are exclusively Investments in the Stock Index FTSE 100 (The Strategy is simply to go long or short in the Index every week depending on other data analysis). Thank you, I see your point with the expectations. I made the same approach. $\endgroup$ – Sandro Jul 28 '16 at 9:48
  • $\begingroup$ Oh no I didnt mean expectation in statistical sense, I meant exp as in the exponential function. It must have autocorrected me and I didnt notice, sorry! $\endgroup$ – Jan Sila Jul 28 '16 at 10:00
  • $\begingroup$ thanks, i calculated it now as exp(sum of all log returns) - 1 Then i took that return, divided it by the amount of weeks and multiplied it by 52. I wrote in my paper now, that it is only an approximation since 52 weeks isn't exactly one year, but i think that should work fine. Thanks for your help! $\endgroup$ – Sandro Jul 28 '16 at 21:31
  • $\begingroup$ I must say im really positively surprised! it was my first time using this forum, surely won't be the last :) $\endgroup$ – Sandro Jul 28 '16 at 21:35
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Is it bonds or stocks? If there is no compounding, then I think it should be correct your way. Also if its log returns, you need to sum them and take expectation of them. That will give you the usual 1+R return. As in if you went from 100 to 105, you get 1.05.

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