I have to calculate weekly log excess returns using the 3-month T-bill. However I am not really sure if I am doing this correctly. This is what I did:
- first I calculated the returns with ln(price/price on previous week)
- then I did this with the 3M T-bill rate: ln((rate/100) +1) / 52. I divided the rate by 100 because it was presented in percentages (so 2% was just written as 2). Divided by 52 because of the amount of weeks in a year.
- after this I subtracted the number from the second step from the first step
Is this the correct way to calculate the excess returns? I'm not really sure about the second step. Is this how to calculate the weekly risk free rate?
Thanks for your time
Edit: because the T-bill is based on a 360 day year, I adjusted my calculations to ln((rate/100) +1) * 7/360