Questions tagged [return]
The return tag has no usage guidance.
67
questions
14
votes
3
answers
7k
views
Total Return measurement paradox w/ Adjusted Close Prices
Using total return calculations is critical in developing security selection models.
The standard way to measure total return is to develop a series of price-adjusted data. Investopedia describes the ...
- 13.5k
13
votes
1
answer
536
views
Is Arithmetic Return Bias Basis of Low Vol Anomaly?
An observation in capital markets is that the connection between return and risk (measured as volatility) is not that straightforward (at least not as modern portfolio theory assumes). One interesting ...
- 27.4k
12
votes
2
answers
20k
views
Square root of time
I am writing about VaR and I am wondering about the following:
We can scale the VaR to different time horizons by using the square root of time, which means, that the volatility is adjusted by square ...
- 121
9
votes
2
answers
483
views
local price return and volume relationship
I wanted to see how the stock price and volume relationship is locally.
So I tried ranking both the daily return (at day t) and volume (at day t) base on a 30 day rolling window with historical daily ...
- 299
7
votes
2
answers
489
views
CDS volatility: daily return calculated by simple substraction (Pt - Pt-1)?
I am working on validating the CDS volatility generated by a third party risk engine. It appears that returns are calculated with simple substractions and adjusted for the CS01:
(Price of the CDS ...
- 527
5
votes
2
answers
425
views
Currency Hedged Excess Return
In the famous article "Global portfolio optimisation" of Black and Litterman, the authors defined the excess return on currency-hedged assets as the following :
$$
E_t = 100 \frac{P_{t+1}X_t}{P_tX_{...
- 526
5
votes
0
answers
566
views
CRSP: Return including dividends
Using CRSP data, I tried to compute the historical returns (including dividends) of stocks according to
Total Return = (adjprc + (divamt / cumfacpr / facpr)) / prev_adjprc – 1,
where divamt is the ...
- 61
4
votes
1
answer
3k
views
Valuing Total Return Swaps
In my quest for simulated data, I am trying to generate prices for Total Return Swaps by calculating the NPVs of the fixed and floating leg. My problem: Given the fixed leg, how do I set the spread on ...
- 1,144
4
votes
2
answers
34k
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 ...
user2921
4
votes
1
answer
952
views
Discrepancy between total shareholder return and return calculated using adjusted share price?
I'm trying to understand a difference I'm seeing between the return I calculate using adjusted close price and the total shareholder return with dividends reinvested (TSR) I get from Bloomberg / this ...
3
votes
1
answer
213
views
Risk, required return and expected volatility - what is the relationship?
Return required from risk averse agents from risky investments are proportional to expected return variance. That is from the textbook, you take the portfolio with the highest return to standard ...
- 1,402
3
votes
2
answers
915
views
Transform Fama French Returns to Euro
I constructed a global portfolio and calculate it's daily return in Euro.
Now i want to do the regression with the Fama-French daily factor-returns (HML, SMB). However, these returns can only be ...
- 31
3
votes
2
answers
4k
views
Calculating Geometric mean
I need to annualize daily returns for about 120 firms for over a period of 10 years. I chose to calculate the geometric return because 1) it is the actual return 2) to avoid the asymmetric effect of ...
- 127
3
votes
0
answers
556
views
Calculating Net Annualized Return on LendingClub historical data
I am interested in the formula LendingClub provides as their measure of "Net Annualized Return":
$\big(1 + \frac{\sum_{i=1}^N{((I_i + L_i - S_i - C_i + R_i) / P_i) P_i}}{\sum_{i=1}^N{P_i}}\big)^{12}-...
- 131
2
votes
2
answers
2k
views
Correlation: Use Price or Return? Return doesn't make sense [closed]
I am trying to find the correlation between the returns of two indices over a long period of time (10 years+) . Should I be using the index daily price level or the index daily total return? Most ...
- 21
2
votes
2
answers
375
views
ITM Puts under negatively skewed return distribution (volatility skew)
I read Hull (2009) on implied volatilies. I understand that (given a negatively skewed return distribution) an OTM-Put is more worth than under a normal distribution and that a OTM-Call is worth less ...
- 301
2
votes
3
answers
1k
views
Logarithmic returns for realized variance?
I am wondering which method makes more sense when computing log returns. I am trying to compute log returns for realized variance, and I have the opening and closing prices for every minute.
Since ...
- 351
2
votes
2
answers
226
views
Comparison between Absolute return and Relative return
In typical VaR calculation, we need to calculate the time series of historical realised return. There are mainly 2 ways to calculate such returns viz. ...
- 802
2
votes
0
answers
79
views
Bond Index Return from Yield Curve Data [duplicate]
I am trying to compare fund returns with benchmark returns. I have some yield curve data (some of them calculated by Bloomberg) but not bond price or return data. Is there any way to get bond returns ...
- 543
2
votes
1
answer
678
views
Required Rate of Return vs Expected Return
I faced a problem that gives the following information:
market risk premium, and risk free rate is given
You currently have a portfolio of amount of x, beta b1.
Now there is a new investment ...
- 165
2
votes
0
answers
120
views
What does it mean to adjust for short-run liquidity in finding risk-free rate of return
Risk-free rate of return should equal the expected long-run growth rate of the economy with an adjustment for short-run liquidity.
What is meant by the last phrase, "adjustment for short-run ...
- 21
1
vote
2
answers
212
views
best way to calculate the return
Suppose that you want to calculate the single period return. Let p0 be the initial price and p1 be the final price over the ...
- 113
1
vote
1
answer
188
views
Single outsized daily return value creates substantive discrepancy between annualized variance calculated from daily vs monthly returns
I am new here, and to the field. I hope my clunkiness in expressing myself can be forgiven.
My situation is as follows: I have around three years of daily return data for some financial asset. Out of ...
- 113
1
vote
1
answer
3k
views
variance of log return
Suppose $C_i$ is i-day's closed price, when drift is small,
we have the close to close variance
$$\sigma^2 =\dfrac{1}{n}\sum\limits^n_{i = 1}\left(\log\left(\dfrac{C_i}{C_{i-1}}\right)\right)^2.$$
If ...
- 1,243
1
vote
2
answers
843
views
Interpretation of Excess Return
How is excess return defined for a given asset?
There are altogether two different definitions for excess return used in the calculation of alpha and beta and I'm unable to understand which one ...
- 111
1
vote
2
answers
678
views
Measuring returns
always come across the issue of which return to use. There a three types that I know about. The simple return, the log return and the geometric return.
Now I wonder whether it depends on the subject ...
- 11
1
vote
1
answer
128
views
Sharpe Ratio with Stochastic Interest Rate?
All versions of the Sharpe ratio that I've seen seem to assume that the risk-free rate is constant, and the standard deviation of the excess return in the denominator simplifies to the standard ...
- 31
1
vote
1
answer
111
views
How can I compare two mutual funds' performance with a sparse set of data?
I want to compare the performance of two mutual funds. The only data I have is annual returns for the past 7 years. So I have 7 observations for Fund 1 and 7 observations for Fund 2. In addition, I ...
- 2,238
1
vote
1
answer
378
views
Regression giving the return on a stock
I have this regression equation:
$$
R_{stock} = 3,28\% + 1,65*R_{market}
$$
Where $R_{stock}$ is the expected return on a stock and $R_{market}$ being the market risk premium.
I have a one-year T-...
- 11
1
vote
1
answer
154
views
How do asset prices behave in a single-period and multi-period model?
When we talk about the single-period CAPM, the return in a particular period t can be defined as $(P_t - P_{t-1})/P_{t-1}$. Investors plan at t-1 and get a payoff at t.
After this period, the same ...
- 61
1
vote
1
answer
279
views
Difference between returns
I have a monthly time series of monthly returns for a specific factor that I'm investigating, the Quality factor QMJ as proposed by Asness et al. (https://www.aqr.com/Insights/Datasets/Quality-Minus-...
- 11
1
vote
1
answer
76
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 ...
1
vote
1
answer
303
views
How to calculate IRR between 2 numbers
I want to consider 4 scenarios in google sheets. All deal with a periodic return over n periods
Positive to Positive
Positive to Negative
Negative to Negative
...
- 121
1
vote
1
answer
85
views
Which are the practical implications that the continuously compounded rate of return can be smaller than the expected rate of return?
I'm reading Hull's Options, Futures and other Derivatives and it intrigues me that the distribution of the continuously compounded rate of return x is: $x \sim \phi(\mu - \frac{\sigma^2}{2}, \frac{\...
- 151
1
vote
2
answers
3k
views
convert three months interbank rate into monthly rate
I have a time series of the three month interbank rate each month and I suppose that the rate is has yearly frequency.
I need these interbank rates to be on a monthly basis because I want to us these ...
- 23
1
vote
0
answers
79
views
How to calculate expected return on a loan while having probability of default
I have data on loans including: initial loan taken by each borrower, their probability of default. Is there a way to calculate VaR that would show potential loss of that asset?
First what I need is ...
- 11
1
vote
0
answers
37
views
Inflation in wealth forecast [closed]
I am building a model to simulate people's wealth in the next years.
Say Mr X has a portfolio with an expected return of 3% (annual). From this I can simulate the return of his portfolio in the next ...
- 11
1
vote
0
answers
70
views
Forward returns measurment?
Is there a common approach to measure how a forward contract is performing?
Here's what I'm thinking, each day you would price your forward with the next formula.
$$
F_t = S_0 e^{-r_f T}-Ke^{-r T} = (...
- 282
1
vote
0
answers
2k
views
Beta Adjusted Return
I'm a bit confused about the definition of the 'Beta Adjusted Return', say I have benchmark whose return is $r$ and a stock whose return is $R$, the beta adjusted return is defined as
$$ ...
- 89
1
vote
0
answers
1k
views
Cumulative return calculation with monthly return [closed]
I am working on calculate the cumulative return and I have monthly return rate as input. So I found formula of cumulative return:
$$
\text{cumulative} = (1 + r_1) (1 + r_2)(1 + r_3) - 1
$$
so I used <...
- 11
1
vote
0
answers
27
views
Source for derivation of acquisition price for given IRR and cash flows
Does anyone know a quotable source - book/academic or practitioner's paper - that derives the acquisiton price for a target firm when the buyer's desired IRR and all cash flows over time of the target ...
- 123
1
vote
0
answers
73
views
normalized 15-min absolute returns
I was reading an article today and I came across a new expression: "normalized 15-min absolute returns". I know what returns mean but I don't have any idea how I can normalize them ( I am not sure if ...
- 11
1
vote
0
answers
2k
views
How to calculate monthly Return from a Momentum Strategy with overlapping Holdingperiods?
I replicate a Momentum Strategy from Rey and Schmid (2007) "Feasible momentum strategies" based on the idea from Jegadeesh and Titman (1993). I only buy the single stock with the highest past return ...
- 11
1
vote
0
answers
40
views
What is the expected rate of return from paying 1 today for a 50/50 bet receiving either 2 in year 1 or 0.5 in year 2? [closed]
What do you think is the correct way to calculate expected return for this example?
I think Method4 below is correct.
Method1 35.4% = AVERAGE(1.0, 0.5^(1/2)-1)
Incorrect, but some will argue that ...
- 11
1
vote
1
answer
259
views
Intrepreting the Capital Market Line plot
I am looking at plots of the Security Market (SML) line and Capital market line (CML).
The X axis is the beta for the SML and Standard deviation for CML; the y axis is labeled with excess return.
...
- 23
0
votes
1
answer
64
views
Is my data fittet to be significant?
I am new to this forum and hope for some help. I have a dataset of returns. I cannot tell where these come from, but let's assume they come from a trading algorithm of stock prices. The returns are ...
- 1
0
votes
1
answer
497
views
What is a cumulative return series?
I guess this is pretty easy but I cannot find a definition anywhere. I am trying to reproduce a paper and they say they use a cumulative return series at some point. Does anyone know exactly what this ...
- 23
0
votes
1
answer
123
views
decoding this formula about nominal and real return [closed]
I am sorry if the following question is not quantitative finance.
I am reading this thing badly written lecture notes, which says
$W^r_1 \equiv W_1/P_1^g = (W_0^rP_0^g)(1+R)=/P_1^g$
$(1+R^r)\equiv ...
- 1,023
0
votes
1
answer
447
views
How to calculate daily returns when the cumulative PnL can become negative?
I would like to know a way to compute returns when the total PnL of a strategy can become negative. For example:
Total PnL day 1: 100
Total PnL on day 2: -20
Total PnL on day 3: 30
I have that kind of ...
0
votes
2
answers
131
views
How can I calculate returns for three investment strategy?
Assume that the price of DF stock went from a price of $104 on March 2 to 146 on April 1.
With a current stock price of 146, there is a call option available on the DF stock with an exercise price ...
- 109