Questions tagged [investment]
The investment tag has no usage guidance.
70
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Invested Capital: operating approach vs financing approach
I've googled and read many articles about "ROIC" and "Invested Capital", but I'm still confused about how to calculate them.
The best explanation I've seen so far is:
Invested ...
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Two specific questions about CAPM's assumptions and implications
I have two questions about the CAPM model: the first is theoretical while the second is related to observed market data.
First question:
let's say we have company A and company B and we want to ...
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Question regarding calculating Geometric Standard Deviation
I know GSD can be calculated by taking exponent of standard deviation of log return. My question is whether 1 should be subtracted from exp or should 1 not be subtracted ie exp(stdev of log returns)-1 ...
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Interperting Negative Sortino Ratios
I noticed when both assets sortino ratios are negative the asset with the worse return and worse downside deviation has better Sortino Ratio. Is there a way to fix this?
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Open Interest on Stocks
According to the first bullet point in this explanation, "In the stock market, open interest is the number of buy orders submitted before the market opens. When the open interest is high, people ...
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How to incorporate ESG in Portfolio Optimization?
I currently have a potential investment universe of several thousand stocks and would like to calculate an optimal portfolio that incorporates ESG criteria as well as risk and return. The model should ...
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Why "hedging motives" and "heterogeneous preferences" are explanation for "under diversification puzzle"?
Han et al. 2021 documented something relating to the "under diversification puzzle":
Standard explanations for under diversification include hedging motives
and heterogeneous preferences, ...
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120
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Why individual investors are attracted to lottery stocks is a puzzle?
Han et al. 2021 mention one puzzle in investment is
individual investors are attracted to stocks with high skewness,
so-called lottery stocks(...). This behavior is not consistent with
standard ...
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92
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Calculate interest
I'm kinda stuck with the following problem.
I am given the terms in Month, a net-value, a residual value, and a monthly rate. Now my job is to calculate the interest. Usually I am giving the interest ...
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105
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Performance of dollar cost averaging
If we're investing money into a stock $S$ at a continuous rate, $C$, what is the probability distribution of the amount we have invested?
For example, modelling a stock as GBM without contributions, $ ...
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Change weights of the portfolio [closed]
I have spent a lot of time finding some trading alphas. Now, I have about 10 alphas to trade Future, I also optimized the portfolio by using Markowitz's Modern Portfolio Theory (MPT) to get weights. ...
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What is the duration of a rolling 5 year investment?
I have difficulty with the duration of a 5 year investment (like GIC). In such an investment, the investment (GIC) rate is reset as the current market rates. So the market value is equal to the face ...
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How much market data is required to confidently predict the yearly returns of a stock?
I am looking to passively/lump-sum invest stocks. If I averaged the yearly returns of a stock, how many years would I need before I could say with 95% confidence that the averaged value would ...
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Choose an investment option only knowing the costs, cost of capital and lifetime
A question in my course hasn't given us much to go on. I'm not sure if there is a specific model I could use to determine which project is the better one.
1st option costs 350.000, has a life ...
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3
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Fixed Income Index, ETF Replication
Can anyone please explain how fixed income index are actually replicated (in an ETF) by asset managers ? I looked online, everyone says they do sampling (stratified sampling) which makes sense but I ...
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The best "risk measure" for an investor who does not want to lose any of his seed money
Question
There is an investor who is afraid of losing any of his seed money (initial investment).
Variance of investment returns is not a problem to him. He is willing to take variance as long as he ...
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Optimal investment strategy problem with competing bet-sizing options and limited budget
Apologies for a potentially naive question and unusual wording. I am from another field and would be very grateful for help!
I am looking for the optimal investment strategy that maximizes an overall ...
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657
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Comparison of Carhart alphas (four-factor model)
I would like to compare two strategies through the alpha Carhart obtained. The idea is to find out which one is more profitable (or the least bad). For the first strategy, I obtained a significant ...
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Citation for the definition of Return on Investment
I am writing a paper in an area where the concept of Return on Investment may not be clear. Is there a definitive source for its definition I can cite?
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What share of the stock market is owned by whom
These days we were discussing whom you have to beat if you are trying to earn money in the stock market. I think the players are
private stock holders
actively managed investment funds
ETFs
maybe ...
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2
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How to Calculate ROIC (Return on Invested Capital)
I am trying to calculate ROIC based on data I receive from Yahoo Financials. A comprehensive output of what I receive from the site is below, which elements of this can I put together to get ROIC?
<...
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What is this chart showing?
I am a software engineer studying business finance for the first time. I am really struggling with this chart.
It's supposed to be the "two period model" showing the complete consumption tastes and ...
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305
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Constructing an arbitrage opportunity for a company involving Forwards
Let's say an investor enters a long forward contract on 100 units of underlying assets $S$ and maturity $T$ = 4 years. The asset $S$ pays no dividends and the spot price of one asset is $S_0$ = £5. ...
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Why are changes in stock market wealth considered permanent?
Assume stock prices follow a random walk. If my investments go up by 1,000 dollars on the stock market today and I keep that money invested, in expectation, how much are my investments worth 1 year ...
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Security Analysis By Benjamin Graham Example Doubt [closed]
So I was reading (trying to read) Security Analysis by Graham and I came across this example ("Example 1" in the image attached below) Being the noob at finance and quant that I am, I was unable to ...
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Question regarding loan tape data when thinking about providing credit facility to bank
I have few questions regarding loan tape data such as this one: Data
Say that I as a fund want to provide a credit facility to this bank and am given this loan tape data.
(1) What observations / ...
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447
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NPV and efficient market hypothesis
If I have an opportunity of investment, let's call it investment (A), that costs $I$ in year 0 and gives me $CF_1$ in year 1, I will accept it only if $NPV>0$
$NPV = -I + \dfrac{CF_1}{1+k} > 0$
...
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94
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How to calculate performance of a private equity investment?
Say an investment fund puts \$1 million into private equity investment in 3 installments (\$500k, \$250k, \$250k).
You're given a data table which shows the date, contributions (\$500k, \$250k, \$...
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2
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How exactly are corporate bonds priced at issue
I am interested in Debt Capital Markets but I am struggling to understand how bonds, particularly corporate bonds, are priced initially. I know that a company will tap an investment bank as book ...
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What should I learn/know before reading Investments by Bodie Kane Marcus?
I hope this is the appropriate place to post this. If not, I would really appreciate if someone could redirect me to the right site.
I've been seeing a lot of recommendations for the book, ...
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Logic behind calculating a Carry Multiple associated with Startup Valuation [closed]
I'm reading a book called "The #1 Guide to Startup Valuation: How to value your startup in 12 easy steps" (p. 22-23) by Joachim Blazer.
As one of the building blocks, namely "Return&...
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202
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IPO Valuation: Share Pricing and Number of Shares
Does the number of shares matter for a company to go public?
Suppose a company ABC went public and the initial valuation of the company shares to be sold stands at \$5000. Now, it can sell 1000 ...
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154
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Possible application of Polya's Urn on Portfolio's Investments?
I wanted to find some more information of this topic, but I found very little.
I might be interested in optimizing a stock investment portfolio. Maybe I could use beta or some other common risk ...
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Quantitative model for investing in ETFs [closed]
I want to build a model for asset allocation of my own personal pension in ETFs across four main asset classes: equity, bonds, commodity and property. I am familiar with Python and the basics of risk ...
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Optimizing Investment Portfolio
I might be interested in optimizing an stock investment portfolio. With or without using programming, is there an article I should refer to optimize my portfolio and help me taking good investment ...
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Filter the NASDAQ stocks for investment [closed]
I manage an investment portfolio since 3 years now. It might be interesting to filter all the NASDAQ stocks to tell us which ones have the greatest profit potential.
Is there an arxiv or whatever ...
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Estimating realised gains given growth rate and churn
If one can estimate that the value of an investment portfolio will grow at $g$% per annum, and can estimate that approximately $c$% of that portfolio will be churned each year (sold and reinvested), ...
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Is there a standard name for subtracting time dependent risk free rates from PnL(Equity) curve?
When we subtract the time dependent risk free rate (Federal funds rate) from an PnL (Equity) Curve, what is the curve called?
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Comparing values of indicator between different stocks
I would like to ask whether there is a good way of analysing stock indicators that have no value limitations. For indicators like RSI we have a closed range ( 0 - 100 ) but in case of indicators like ...
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171
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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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Why should long-term investors care about flash crashes/ intra-daily volatility/HFT?
I am wondering about implications of the speed of intra-daily trading on the wealth of an long-term investor. I am not necessarily asking about the costs of HFT trading to society but instead I wonder ...
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How to determine how much a company can invest in M&A activity?
I am an engineer who is increasingly interested in business-related things, and I am reading and learning a lot about what you can derive e.g. from financial statements.
One question I was wondering ...
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637
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How to (efficiently) calculate the maximum possible return of a perfect "crystal ball" investment strategy?
I am new to the world of investing, so please excuse the clumsy wording of the question... there is probably a better term for what I am looking for or maybe this is even a known/classic problem. If ...
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Time-Value of money exercise problem. Any advice on how to solve?
Problem
An investor will receive $365 at the end of each year for thirteen years. The first payment will be received four years from now. Given that the interest rate is 3%, the present value of this ...
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Choice between 2 investments that cost the same but offer different interest and face value [closed]
Assume, you have a choice between two investments that both cost \$1000 each, however investment A pays \$20 a year and \$950 at the end of year 5 but investment B pays \$10 a year and \$1000 at the ...
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Thoughts on how quantitative hedge funds use machine learning to invest in the stock market (algorithms, examples of data, etc.)
I believe there are several post on this general topic but I thought I would start my own thread. I'm a former fundamental hedge fund investor (i.e. modeling a company's financials, forecasting the ...
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Does the FF 3-Factor model work with unadjusted prices?
I am trying to investigate some trading strategies based on the Fama French 3-factor model, for which I assumed I need to use adjusted prices to account for dividends and splits. However, my ...
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ABS vs covered bonds vs CDO [closed]
What is the difference between asset-backed securities(ABS), covered bonds and collateralized debt obligations (CDO)?
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448
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PPPN: participation rate, stocks and premium
I'm a student of financial engineering and am very new to all of this stuff. Now, I'm trying to make an "example of a beginners exercise", but alas, I don't have any clue on how to solve or even on ...
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