Questions tagged [returns]

The asset rate of returns is the profit on a particular investment; it includes any change in the asset value, interest, commission or dividends and so, all other cash-flows which an investors receive or pays due to the investment.

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Alpha calculation inconsistent across methodologies

I'm fairly new to finance, and this does not make sense to me. Consider benchmark & active monthly returns as shown here: If I do a line of best fit, I get an intercept of 8.4% Which is meant as ...
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Why are monthly active returns averaged? Should they not be multiplied?

I'm looking at this video: https://www.youtube.com/watch?v=fZmuJ2A9TC8 @4:43 but the issue is more general. Here the speaker is taking monthly active returns and averaging them ...
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Why is NPV a biased measure?

I was studying return measures such as NPV and IRR from Damodaran's "Applied Corporate Finance" and one thing that he continuously mentioned was that NPV is biased towards projects with ...
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long short portfolio sharpe ratio

What is the proper way to caluclate sharpe ratio for the long short portfolio? When I calculate daily return with no cost, I use this formula: (return for long k.mean()+ (-1)*(return for short k.mean()...
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Monthly excess return with the Shiller data set

I have a question specific to the Shiller data set: http://www.econ.yale.edu/~shiller/data.htm (U.S. Stock Markets 1871-Present and CAPE Ratio). How would you guys determine the monthly excess return ...
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Returns of an interest rate swap

I would like to calculate returns for a plain-vanilla (fixed-for-floating) interest rate swap. Consider, that I am long in USD 5-year swap rate, i.e. I'm holding a receiver swap for 5-year swap rate ...
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I.I.D log returns. What about their square?

If one assumes the underlying return process is I.I.D, is there a solution to the question of the autocorrelation of squared returns? Thanks.
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calculate trading returns when trade nominal goes up in 100 dollar increments

I am trying to calculate total and annualised returns on trading. The problem is that the trades placed have a minimum size of 100 dollars, so we cant assume continuous compounding (100% reinvestment)....
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Computing Delta-Hedged Option Returns

I was reading some papers on delta-hedged option returns and came across an intriguing paper that I found quite interesting. However, I was a bit confused on the authors' methodology of computing ...
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Calculate returns using Federal Reserve's constant maturity interest rate series (for 5, 10 and 30 years)

I am looking to replicate the results from a older research paper. To do that I need first to calculate the returns from Federal Reserve's daily constant maturity interest rate series. According to ...
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How to annualize Sharpe Ratio if monthly returns are serially correlated? Calculation of autocorrelations

I am looking at a data set of 60 monthly returns (last 5 years) and want to calculate an annualized Sharpe Ratio. The usual way of doing this is to calculate the monthly Sharpe Ratio first, and then ...
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Theoretical returns are not matching empirical ones in my backtest

I'm trying to implement a Backtest for my quant strategy but the calculated theoretical returns are not matching the returns from my implementation. Here's the example: On a given day I have 1 million ...
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Are Fama-French returns in percentages?

I am working with data from Kenneth French Data library. While I am aware that they use simple returns, I remain unsure about their format in downloadable files. This is an extract of the file "...
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Returns of interest rate swap

I would like to calculate returns for a plain-vanilla (fixed-for-floating) interest rate swap. Consider, that I am long in USD 5-year swap rate, i.e. I'm holding a receiver swap for 5-year swap rate ...
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1 answer
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Variance of the price from returns variance

Let's say that we have the variance of the daily return at $t_0$: $$\sigma_{r_{t_0}}^2=\text{Var}[r_{t_0}]=\text{Var}[\frac{S_{t_0}-S_{t_0-1}}{S_{t_0-1}}]$$ for price process $S_t$. Is there a way to ...
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Does it make any sense to normalize returns?

I have been going through a course for Time Series Analysis. First we learned to make returns from a time-series of stock index by (Xt - Xt-1)/Xt-1 . This makes the series stationary, which means we ...
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Are the monthly risk free returns on the French data libary website annualized?

when using the monthly Fama/French 3 Factors .csv file on the French data libary web site, it is possible to see that the left column includes the monthly excess return of the market (Mkt-RF) and the ...
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Stocks' returns distribution

I understand that stocks' returns are not normally distributed. However, is there any method that we can rescale the stocks' returns so they look more like normal distributions? I managed to find a ...
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Correct return calculation if short position involved

I wanted to calculate the daily return for a long-short position. Say one has 1 unit of stock A (long) and alpha units of stock B short. How can one now calculate correctly the daily percentage return?...
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Calculating 'times earnings' - Intelligent Investor book question

I'm reading the Intelligent Investor and I came across a passage where Graham calculates the 'times earnings' of the DJIA. But is it wrong, or am I misreading it? Since the market value of these ...
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How is a return-adjusted nearby created?

I am reading Value-at-Risk Second Edition – by Glyn A. Holton https://www.value-at-risk.net/futures-nearbys-and-distortions/ From 6.6.1 "The standard means of obtaining continual time series from ...
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How to calculate return on a series of long position for each price point

The return between two price points can be calculated as Price(present)/Price(previous) -1 Or, it can be expressed as ...
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Calculation of log returns of a short position with two instruments

The usual method for calculating short log returns would be ln((selling price - fees) / buying price). But how does this apply to a trade with two instruments, e.g., a bond breakeven trade? E.g., the ...
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Calculate total index return given only capital gains and income returns

Given total index return for a single period can be characterized as : $$TR_{1}=\sum_{i=0}^Nw_i \frac {(p_{1i}-p_{0i}+inc_i)}{p_{0i}} $$ Is there a way to rewrite or derive a multi-period form of the ...
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How is VaR calculated with mixed return-periods

For example, if you have a dataset of returns that are not daily or yearly, but span 24 days, 1 day, 5 days, 7 days, etc., how do you calculate or interpret the VaR of that? I've tried linearly ...
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Performance Attribution and FX positions

I'm currently reading the book "Mastering Attribution" from Andrew Colin. He first explains that you can separate the FX returns from the security return if the returns are continous ...
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Simulating Correlated Stock Returns in Python (SciPy)

I'm looking to generate stock returns with inter-stock correlation in Python. However, the output is not behaving properly and may have accidental temporal correlation causing issues. This code is ...
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How to calculate the BHAR (Buy-and-Hold Abnormal Returns)?

I am doing my research related to IPOs long term performance. For the BHAR formula, I just want to clarify the formula is that always compare with the first trading day price, or is compared with last ...
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Trailing stop (long-only) based on annualized volatilty

I am wondering if there is a rule-of-thumb for setting a trailing stop (fixed percent) if you know the annualized volatity. I calculate volatility from daily close price using the simple returns, $...
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returns, standard deviation and mean absolute deviation

I'm trying to understand the relationships between return, standard deviation and mean absolute deviation. I saw someone mention: $daily return * 16 \approx annualized volatility$ $weekly return * 7.2 ...
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how to calculate YTD return including the paid dividends

I am looking for a way to compute YTD return and I found this question (calculate YTD return / find first available datapoint of a year in python), however, it seems that it does not include the paid ...
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Calculation of Fama-French risk factors

Background: I am conducting some research on equity returns across Denmark, Finland, Norway and Sweden. The analysis is seen from a Danish investor’s point of view, and therefore I have currency ...
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CURRENCY ADJUSTED RETURNS: How to adjust stock returns in foreign currency (e.g., EUR) to local currency (USD)?

I have collected monthly stock returns (in %) denominated in EUR and exchange rate EUR/USD. I am trying to adjust the monthly stock returns denominated in EUR to monthly stock returns denominated in ...
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What is higher order moment of firms?

Today I read a sentence that "in US, expected market excess returns can be predicted using average higher order moments of all firms". When I read further, "higher order moments" ...
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What is this return contribution methodology called (Multi-Period Contribution)

In reviewing the recently answered, below question Multi-Period Contribution I think the top answer (calculating weights at the end of each period) results in a method which does allow for multi-...
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How to arrive at excess real log return? (Conflicting answers on the web)

I am finding many conflicting takes on how to arrive at the excess real return. My understanding is we take log nominal return - log inflation to find real log return. Then we take log nominal risk ...
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What details must be considered when assessing an asset’s inflation beta?

The inflation beta of an asset is described as: $$ r_{i,t}-r_f = \alpha_i + \beta_\pi^i \epsilon_{\pi, t} + u_{i,t} $$ For shorthand, I will use “return” to mean excess return. In academic literature ...
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Inflation β = 1 meaning a “perfect inflation hedge?”

I read somewhere (Ang, Brière, Signori: Inflation and Individual Equities, 2012) that in a given period if the inflation rate rises by 1% point (say from 1% to 2%), and the return of Asset A rises ...
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Examining the dependence of the fractional difference parameter in ARFIMA(0,d,0) vs bar size for Realized Volatility

Realized volatility is a long-memory process and so I fitted an ARFIMA(0,d,0) to log(RV15) where RV15 is realized volatility calculated from 15-min bars. I proceeded to examine how changing the bar ...
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What's the best proxy for a stock contribution to the portfolio returns?

I have a table of the weights of stocks in my portfolio for various periods and another with the returns that those stocks had for the same periods. If I sum the product between the weights and the ...
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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 ...
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larger sample weights for larger absolute returns?

In section 4.6 of Advances in Financial Machine Learning, Lopez de Prado writes In the previous section we learned a method to bootstrap samples closer to IID. In this section we will introduce a ...
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Calculation of Long-Short-Portfolio returns for different holding periods

I have monthly stock returns I want to invest in according to my trading signals. Now I want to figure out the optimal holding period of the long-short-positions. (The same time for both positions). I ...
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Source for Intraday or High-frequency stock price data

I am in search for intraday (some observations per day would be fine) or high-frequency data for stock prices. I have for example 3.000 ISIN numbers of German companies and want to get the intraday/...
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Log Returns or Simple Returns for Portfolio Performance Analysis

Simple question but one thats stumping me slightly. I am doing a study analysing historical portfolio performance related to portfolios constructed with separate factors in mind. I realise simple ...
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Expected returns and Fama-French Factor Model

It is my understanding that for any given stock, the sample mean of historical returns is not a good proxy for the stock's expected return. In fact, the return on a stock needs to be estimated via ...
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Fama French: daily or weekly returns?

I am conducting a performance comparison analysis among sustainable and conventional mutual funds. I want to analyse the last 6 years and focus also on the subperiod of the COVID-19 crisis. I have ...
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What is better: A negatively skewed return or a positively skewed returns distribution?

I noticed that in certain literature, like in CFA level 1, the theory put forth is that someone should prefer positively skewed returns as mean > median > mode. But why is that? Based on a ...
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Why is the approximate entropy of (some) stock returns zero?

I downloaded some prices for TSLA and AMZN from yahoo finance to try and see if I could measure the entropy on a rolling basis with the intention being maybe returns have lower entropy (are more ...
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Predicting smoothed returns

Due to the extremly low ratio of signal to noise in financial data, predicting raw returns is very difficult. If we smooth out the price time series, say by an EWMA, and then calculate returns on this ...
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