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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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What are the implications of the random walk hypothesis? [duplicate]

If RW hypothesis holds true for a particular market or stock, what does it mean in terms of returns and log-returns autocorrelation and predictability? For instance, if prices are RWs, then the ...
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35 views

Type II error for share return event study

I need help with calculating the type II error for a specific event study. It is a case study (i.e. one observation) and I want to test whether event day abnormal returns are different from zero. I ...
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1answer
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Differences Between Portfolio Daily Average Returns

I have a doubt about the average daily return for a 2 stock porfolio. I have the data of both stock returns over a 1511 day period. I used 2 approachs to calculate the average return. In the first one,...
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Calculating realized volatility with excess or raw returns

I have read a couple of papers on realized volatility forecasting. If I am calculating the realised volatility of the S&P 500, should I use excess returns or raw returns? What is the standard ...
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1answer
34 views

When modelling ARCH/GARCH effects, do we use excess returns?

When modelling ARCH/GARCH effects, do we use excess returns? Is it common in the literature to use excess returns when modelling volatility as opposed to raw return data?
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55 views

What is, here, the relationship between “compound” and “arithmetic return” and “volatility”?

I'm trying to find the exact (ie, not an approximate) relation between the "Compound Return", "Arithmetic Return", and the "Annualised Volatility" as given the assumptions below, and from there the ...
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Index Performance Illustration: CAGR Vs. 12mo HPR - and what time period?

I created a set of sub indices dating back to January 2000 and have monthly returns data. I am trying to analyse the dispersion in returns. The underlies are REITs. How does one choose the time ...
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20 views

Sample distribution of cross-sectional statistics of returns

Currently doing an application of VaR on sample of industry portfolios in the US. I have a matrix of $n$ industry portfolios with $m$ time-series observations. I calculate cross-sectionally (for each ...
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1answer
45 views

Are Kenneth French Research Returns log-Returns?

Does anyone know if Kenneth French's return data on his website is log returns?
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41 views

Market Invariant for Commodity Futures

In the same sense that Meucci describes "compounded returns" as the invariant for equities and "changes in yield-to-maturity" as the invariant for fixed-income, what is the invariant for a commodity ...
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1answer
44 views

Creating value weighted portfolio returns. How to handle missing data?

I am creating portfolios using stock data. I have some missing data for certain months. What is the best way to handle this? Should I treat missing months as a return of zero? I want to try and ...
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2answers
57 views

Daily returns to monthly basic question [closed]

I am currently a little bit puzzled. I am trying to compute the monthly returns from a set of data. ...
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1answer
31 views

Calculating Compound Annualized Rate of Return (Negative Mantissa)

According to Kaufman (Trading Systems and Methods, 2013), the compound annualized rate of return is calculated as follows: $$\mathrm{AROR}_\mathrm{compound} = \left[ \left( \frac{\mathrm{Final ...
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1answer
57 views

How to apply derived beta to daily change?

I've taken three months of price return data for two instruments and calculated a $\beta$ between the two using the formula $\beta = \frac{Cov(x,y}{Var(y)}$ with the goal of estimating what the ...
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2answers
92 views

Volatility Index for Industries

The VIX index is based on the S&P, I am wondering the feasibility of creating a VIX index for each of the S&P 500 Industries? Would this even be possible?
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2answers
311 views

Predicting stock returns with GARCH in Python

I have seen this post: Correctly applying GARCH in Python which shows how to correctly apply GARCH models in Python using the arch library. Now I am wondering how I ...
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3answers
83 views

Calculating Sharpe Ratio with dynamic position sizing

I'm currently backtesting a mean reversion pairs trading strategy. However, instead of simple long or short trading signals, I'm using multiple "levels", where the further away the spread is from the ...
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1answer
54 views

IRR for irregular cashflow in and out

So I work for a real estate development umbrella company and the developers that work within it borrow money as needed from the company and receive a percentage of the inflows after repayment of debt. ...
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2answers
64 views

Calculating excess returns

I would like to know if I am calculating these excess returns correctly. I have here an R dataframe with weekly 3-month treasury bill rates, and the arithmetic ...
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1answer
92 views

Cumulative Return on Futures

In my current backtesting, I am using log returns as a proxy for simple returns via the relationship $\ln(1 + r) \approx r$ for small enough r. This gives me wonderful properties like time additivity, ...
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2answers
150 views

How to calculate “portfolio cumulative return” from individual price data and weight of them?

I'm trying to run backtest in a vectorized way using Python Pandas and need to calculate a portfolio cumulative return from price data and weight of asset data. I ...
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1answer
46 views

How does inflation impact stock returns? Academic examples

For a literature survey in my university class, I have been asked the question "How does inflation impact stock returns?". After reading some informal articles (in periodicals/ the general internet), ...
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1answer
111 views

What is the Probability Distribution of Max-Drawdown?

How to obtain the probability distribution of Maximum Drawdown, starting from the probability distribution of Daily Returns? Here the details: Suppose I have a time serie of N=1000 daily returns. ...
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28 views

What price should be used in calculation of daily return

With OHLC data in hand, what price should be used to calculate the daily return? Some models use daily close price, but I don't think that's a reasonable assumption considering practical changes in ...
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1answer
63 views

How to Calculate Stock Return with Stock Bonuses and Rights?

I would appreciate if you could let me know how to calculate stock return for a given company when the company issued bonus shares and rights. If company just paid dividends, stock return would be: ...
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1answer
67 views

What are the units of the variance of returns?

I am a little confused about the units of the variance of returns. One way to compute that would be to look at the units of returns- $$r=\frac{1}{\Delta t}\ln\frac{P(t+\Delta t)}{P(t)}=\text{...
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71 views

Black Litterman - numerical instability

I am trying to work out the formula for the posterior mean in Black Litterman's model assuming 100% confidence : Ref: https://corporate.morningstar.com/ib/documents/MethodologyDocuments/IBBAssociates/...
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2answers
76 views

Return on a CDS portfolio

Good evening, I try to compute the performance of a portfolio of a CDS. I already know how to mark-to-market a CDS but typically, the first time you enter a CDS, you invest zero as the mark-to-market ...
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How to compute historical bond drawdowns from yields

I came across a very interesting article which shows a picture with the drawdowns bondholders would have faced by investing in Fixed Income since 1919. However, the picture I get looks a bit ...
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1answer
57 views

Return Contribution for Annual Returns

I have a portfolio $p$ made up of a bunch of assets $i$ where the weights change slowly over time. The returns over each period $j$ composed of the weighted returns of the asset $r^j_p$ $$ r^j_p =...
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1answer
137 views

How to compute bond drawdowns?

I came across a very interesting article which shows a picture with the drawdowns bondholders would have faced by investing in Fixed Income since 1919. The data is based on the Moody's seasoned AAA ...
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0answers
94 views

Calculate monthly returns for a QUARTERLY and YEARLY rebalanced portfolio in R

I built a minimum variance, equal weight, inverse volatility, and equal risk contribution portfolios based on the same data set of monthly returns for 30 different companies. The covariance matrix is ...
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1answer
165 views

Is positive skewness preferences rational or irrational?

Is positive skewness preference rational or irrational? I have a great trouble understanding why investors should prefer positive skewness over negative one. Sometimes it is argued that preference ...
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1answer
178 views

Portfolio forward return

I am working on a project which needs to find portfolio return for the next m months. To begin, let say investor hold a portfolio of $N$ stocks with weight $w_i$ invested in stock $i$, what is the ...
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1answer
107 views

What is the correct way to calculate the annualized returns from rolling windows starting from monthly returns?

What is the correct way to calculate the annualized returns in 5-year rolling estimation windows starting from monthly returns? Is it most correct to first annualize the returns (using the geometric ...
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3answers
238 views

If markets are efficient, why are most returns systematically high?

Suppose markets are perfectly efficient and asset prices reflect all available information. Under this assumption one expects current prices to be non-biased estimators of future prices. It seems to ...
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0answers
35 views

Computing squared returns given differential equation for prices

I am looking for general advice on how to start tackling the problem below. My background in math is fairly bad when it comes to stochastic differential equations, but if you have any recommendations ...
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1answer
57 views

Variance covariance matrix - number of periods required

Hi I am reviewing the example of Barra risk model in the following document page 23 there is the statement: "Estimating a covariance matrix for, say, 3,000 stocks requires data for at least 3,...
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91 views

Monte Carlo simulation based VaR: daily vs annual parameters

I am given the initial price, annualized return, and volatility of a security. I am trying to calculate annualized VaR using Monte Carlo simulation approach. To do this I will use the following ...
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46 views

Calculating Historical Currency Returns for Backtesting

I am trying to calculate a historical daily series of developed market currency returns versus the USD, which can be used in backtesting currency strategies. In real time, one would buy a currency ...
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Bootstrapping to Judge the Fit of a Sampled Return Distribution

Consider the following: I have sampled yearly stock returns from a specified distribution. What I want to do is compare how well my sampled distribution fits the empirical distribution of yearly ...
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1answer
67 views

Should log returns be used in multilinear regressions?

As the title already says, should log returns, instead of simple returns, be used in regression analysis? In this case, I want to analyse the impact of specific factors (Dividend yield etc.) on the ...
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2answers
181 views

question on XIRR (excel)

Let's say we have an initial investment of -10 on 1/1/2000, and from 1/1/2001 to 1/1/2018 (with annual payments on Jan-1 of each year for 18 years) we get a CF of +2 each year with a final payment of ...
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33 views

History to use to fit a gaussian mixture distribution?

I have to model the distribution of past returns for several time horizon using a gaussian mixture distribution. I first build my time series of past returns thanks to a rolling sum of my past log ...
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1answer
226 views

Pandas: Close-to-Open return on stocks

I am trying to daily calculate the close-to-open return for j stocks for t days. Is there anyway I can calculate without using a for loop? I have one Dataframe for daily close prices and one for daily ...
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56 views

Should we use total return or OAS when comparing different bonds?

When comparing different bonds, for example corporate bonds and Treasuries, should we use total return or Option Adjusted Spread if we want to know one's return advantage over another? Some say ...
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64 views

Changing the frequency of 5-min returns/realized volatility of different products

I stumbled upon a problem of converting the returns and volatility of high frequency data to daily ones. I start with 1-minute returns, then calculate the 5-minute realized variance as the sum of the ...
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24 views

Intra-period return on a long forward position

Just recall that return on a long forward position over the term of the forward contract from $\displaystyle t=0$ to $\displaystyle t=T$ is \begin{equation} R_{T,0}=\frac{S_{T}-F_{0}}{S_{0}} \end{...
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2answers
87 views

What returns to use?

I have monthly returns of my portfolio... I would like to summarize the performance over a longer period in one overall figure. Should I use log returns per month then use geometric mean on the log ...
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2answers
527 views

What is the difference between squared returns and variance?

I am trying to calculate 1-day ahead volatility forecasts using the exponentially weighted moving average, however I am unsure on how to read the formula provided within Risk-Metrics Technical ...