Questions tagged [asset-returns]

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42 views

How to adjust a portfolio's rate of return for contributions and withdrawals?

Suppose we have a portfolio with many assets. Since this portfolio receives monthly contributions and withdrawals, what is the best method to evaluate its global rate of return and avoid computing ...
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30 views

Using Timeseries DB for Tracking Asset Performance over time

I am building a system that allows users to purchase digital assets, and i would like to know the asset's performance of individual users. A user may purchase an asset multiple time in a single day, ...
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0answers
26 views

Do asset return correlations have strong non-linear interactions? [duplicate]

If I compute the correlation matrix for $N$ stocks or indices, are there always expected to be strong non-linear dependencies between each asset pair-wise? Or are there only linear dependencies in ...
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1answer
51 views

How to compute returns from cumulative returns in Python? [closed]

If X is a $T\times N$ pandas DataFrame of multivariate asset returns, the cumulative returns can be computed in python as (1 + X).cumprod() - 1 How can I reverse this operation so that I go ...
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19 views

Forecasting credit returns

I am doing some "rough"/"back-of-the-envelope" estimation for 10-year credit returns based on some IG and HY credit indices (not specific bonds). My basic assumption is that the ...
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1answer
122 views

Which financial time series have a PDF and/or CDF?

Consider the following types of financial time series for a single publicly-listed stock: Price data Log returns Cumulative returns Each is computed from the item listed before it: log returns are ...
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1answer
47 views

How to simulate asset prices/returns that display market regimes?

Are there any techniques that can make a multivariate random number generating process for stock prices/returns, like geometric Brownian motion via Cholesky, also include the simulation of a finite ...
1
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1answer
26 views

How to evaluate prediction(s) made of the asset return mean?

In finance, it is well-known that the expected value of asset returns, $\mu$, otherwise known as the average return or mean or first statistical moment, is difficult to predict. I think it was ...
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0answers
12 views

Is it easier to estimate the mean of volume/dollar bar returns than time bars?

Financial data, by default, is sampled using constant intervals of time, i.e. we collect the prices of assets every day, and then take the log-differences of prices to compute daily returns. These are ...
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2answers
180 views

Normality or Log-Normality of Regular Returns

Another old question on this site (How to simulate stock prices with a Geometric Brownian Motion?) inspired me to ask the following question: if we assume that regular returns could be normally ...
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0answers
24 views

Does annualizing daily returns make them more normally distributed? [duplicate]

Asset returns are usually non-normal because they are skewed and have fat tails. Does annualizing or downsampling daily returns (transforming a sample to a lower frequency, such as daily to monthly) ...
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1answer
30 views

Does standardizing/normalizing asset returns change their skewness and kurtosis?

Asset returns are obtained by log-differencing prices. Standardizing or normalizing/scaling asset returns can be carried out by de-meaning the returns and dividing them by their standard deviation, ...
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3answers
471 views

Any portfolio theories not based on asset returns?

For data, the mean-variance model for portfolio optimization uses asset returns to minimize portfolio risk (covariance matrix), which is asset returns volatility, and sometimes simultaneously ...
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2answers
54 views

Daily to Monthly Performance Attribution - Getting Effects to equal the Excess Return

I am building a performance attribution tool on Python to help us understand the asset allocation, stock selection effects of our fund. We are using daily price data for each component within the ...
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1answer
60 views

The ratio of upside deviation to downside deviation in portfolio weighting

I've been calling this ratio "acceleration" in my head, so I'll do the same in this post. The question is, is this relationship used anywhere and if so, how? My thought process is as follows. Risk ...
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1answer
23 views

Performance attribution of indices to their sector weights

Is it possible to attribute performance of indices (monthly returns and risk measures - Sharpe ratio, etc.) to their sector weights (if I know them)? Example: I know the monthly performance of ...
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0answers
30 views

Time and asset weighted rate of return of a portfolio

If I have a portfolio with 3 initial assets on day 1 (say, stock 1 with beginning market value of \$100, stock 2 \$150 and stock 3 \$175) and after 10 days the stock 2 is sold for \$200, how can I ...
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0answers
45 views

Replication of the paper: “A Comprehensive Look at the Empirical Performance of Equity Premium Prediction”

I recently replicated the paper "A Comprehensive Look at the Empirical Performance of Equity Premium Prediction" and found out that my estimation of the equity premium differs from the data provided ...
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0answers
49 views

How to compute return series for a German government bond with a 0% coupon?

Recently, the German government issued a long-dated bond with a 0% coupon. I'm trying to implement a historical VaR model and would like to know the best way to model the historical returns of this ...
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2answers
174 views

Distribution of simple returns vs logreturns

I understand that stock prices are conditionally modeled using a log normal distribution by the relationship $ y_t/y_{t−1}∼logN(μ_{daily},σ^2_{daily})$ $y_t∼logN(log(y_{t-1})+μ_{daily},σ^2_{daily}))$ ...
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1answer
74 views

Portfolio & Asset Returns across Multiple Periods

The stocks of CK Tan's, Robertson's, and Tamashimaya are held by the hedge fund SSK. They hold an equally weighted portfolio. The end-of month prices of the stock during five months this year is given ...
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0answers
39 views

Calculating the fundamental value of house price to separate bubble component from the price

The bubble in asset price is defined as the deviation of the asset value from its fundamentals, empirically Mendoza and Terrones (2008) measure the bubble as the deviation of an asset price from the ...
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1answer
93 views

Jensen’s Inequality for returns on short positions

this is puzzling me. Say you have an asset A, that on day t+1 returns 1%, and then on day t+2 returns 1% again. If you invest $1 in A on day t (take a long position), then on day t+2 you have earned:...
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2answers
140 views

Why can we assume that asset return rates are normally (or lognormally) distributed?

In many theories of financial mathematics it is assumed that asset return rates are normally distributed (e.g. VaR models) or lognormally distributed (e.g. Black-Scholes model). In practice, asset ...
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0answers
43 views

How to compare performance of a German stock

How would you compare the performance of a German stock listed in DAX? I heard many use Euro Stoxx 50. But wouldn’t be the obvious choice to use the DAX? Also, would you use DAX INDEX or DAX FUTURES?
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3answers
264 views

The possible preferences of investors for higher than first 2 moments of return distribution?

Can anyone explain in an intuitive manner a justification for possible preferences of investors for moments of return distribution beyond the first two moments (i.e. mean and variance). For example, ...
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0answers
161 views

Fama-Macbeth with Liquidity Sorted Portfolios

I'm currently working on a paper in which I'm trying to see whether the liquidity premium is an observable phenomena when taken into the context of computer games. From my research online I've found ...
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2answers
476 views

Central limit theorem and normality assumption of asset return distribution

Can central theorem justify normality assumption of assets return distribution? And if it can why the empirical evidence show this assumption, which many finance models are based on, is a far cry from ...
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2answers
28k views

How to calculate equally weighted market portfolio

There's two studies that test the same thing in different markets (i.e. they apply the identical methodology). They state: 1) "$R_{mt}$ is the equally weighted average stock return in the dual-listed ...
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5answers
887 views

Modeling Long-Term Mean Reversion in Asset Returns

Fortunately, for obvious reasons, few applications require simulating asset returns over horizons in excess of 30 years. Nevertheless, simulations over long horizons are sometimes conducted as part ...
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5answers
3k views

Intuition behind Fama-French factors

In the Fama-French 3-factor model the portfolio returns are explained by the market the SMB factor (Small [market capitalization] Minus Big) and the HML factor (High [book-to-market ratio] Minus Low)...
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0answers
26 views

Is variation in price-dividend ratios that is attributable to excess returns due to variation in returns or variation in risk free rates?

Cochrane and Fama show that "all variation in price-dividend ratios corresponds to changes in expected excess returns -risk premiums- and none corresponds to news about future dividend growth". Is ...
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1answer
3k views

Definition of log return of an asset [closed]

What is the general usage of the term daily log returns $Y_t$ of an asset? (1) or (2)? $$(1) \text{ } Y_t = log (\frac{p_t}{p_{t-1}})$$ OR $$(2) \text{ } Y_t = log (\frac{p_t-p_{t-1}}{p_{t-1}})$$ for ...
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1answer
112 views

Why should we care if the “squares of returns are independently distributed over time” to choose an adequate model of the distribution of returns?

In a Time Series Book by Hashem Pesaran, he mentions that there are a number of issues that need to be addressed in order to choose an adequate model for predicting asset returns. I understand the ...
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2answers
655 views

Empirical distribution function of overlapping time series data

If we model asset return volatility for periods of more than one (say more than one day) there is the square-root rule which holds true under some assumptions. The situation is more tricky if we look ...
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1answer
740 views

Cumulative portfolio returns vs. product of cumulative asset returns

I wasn't able to find something that addressed this specifically with the search terms I was using, though I am sure an answer exists here. [Please reference the image below] Columns B & C are ...
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1answer
353 views

Private Equity: Direct Alpha vs Excess IRR

I'm trying to understand the advantages and disadvantages of using Direct Alpha versus Excess IRR for computing excess returns over a market index for private assets. Wikipedia references a highly ...
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2answers
4k views

Computing the Sharpe Ratio

The building blocks of the Sharpe ratio—expected returns and volatilities—are unknown quantities that must be estimated statistically and are subject to estimation error. The main problem I have is ...
3
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1answer
176 views

Modelling fund positioning using fund returns and linear regression

I want to measure the positioning of an active bond mutual fund vs. its benchmark via rolling linear regression of returns vs several factors. The intuition of using linear regression is that the ...
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1answer
113 views

How did Dimson, Marsh and Staunton (2002) computed the equity index annual real return?

I was trying to read the triumph of the optimist, but it was almost impossible to see a well-written formula to show how the returns have been computed. In a simple sense, I do not know how the annual ...
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2answers
14k views

What is the price pressure?

What is the definition of price pressure and what does it imply? In a number of paper I read that the price pressure can influence the portfolio returns; can you explain why and in which way it can ...
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1answer
133 views

Simple simulation model of bond plus cash returns

Is there a robust way to model 'bond plus cash' simulated returns, say in Excel, for an asset allocation problem between stocks vs bond plus cash? For equity, ...
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2answers
105 views

Significance of return under stable distribution

if I want to use t-test to test significance of my returns, it assumes the random variable is distributed normally. But in my work I work under stable distributed ...
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1answer
858 views

Back to Basics — Cumulative Returns

I recently came across a chart of Fama-French's (FF) HML factor cumulative performance. I first saw this in an article by AQR's Cliff Asness: http://www.institutionalinvestor.com/Article/3315202/Asset-...
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1answer
1k views

How to get get weekly returns from daily data

Good day I would like to get weekly returns data from daily data , I want to use the Wednesday-to-Wednesday approach – the returns (rt) are computed from the Wednesday closing prices Pt , i.e., rt = ...
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3answers
2k views

Trading days or Calendar days for Compound Annual Growth Rate?

When calculating CAGR for intervals shorter than a year (or intervals that are longer than, but not integer years in length), should you use the 252 trading days or the 365.25 calendar days? The ...
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1answer
636 views

How to simulate asset returns using student t?

I am currently trying to simulate an asset return using the student-t distribution, but I can't find how I should do this. I began with the Geometric Brownian motion and just changed in order that ...
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0answers
41 views

Polynomial interpolation of corrected lognormal distribution

Can anyone provide a formula for a polynomial interpolation of the corrected lognormal distribution used to model returns traditionally resulting from the wrong Brownian motion generated model? ...
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0answers
58 views

Is a position-weighted sum of nominal returns for a single asset a mathematically sound calculation?

A friend of mine insists that that the following is a sound method to calculate the performance of a single holding in a portfolio, given that over time more capital has been allocated to that holding....
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0answers
78 views

Computing Overall Return for A Single Asset Given Inflows & Outflows

I am creating a portfolio tracking model in Excel and have run into difficulty on how to track the overall performance of a single asset, given that over time more and less capital (shares) has been ...