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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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567 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 ...
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96 views

Calculating realized volatility of high-frequency data

I am wondering how to calculate the realized volatility. Sources such as say that the realized volatility is the sum of squared log returns sampled at a given frequency. So using 30 minute frequency ...
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1answer
78 views

Returns and Factors for European Market Kenneth French Database

I am planning to estimate Fama-French model for mutual funds with European equity scope. I am thinking about using the European factors from Kenneth French database, which are computed in USD. The ...
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Generate P Value from stationary bootstrap following Politis & Romano (1994)

For my master thesis I am analyzing the performance of trading strategies. For this I need to avoid data snooping by utilising the FDR approach. I follow closely the procedure presented by Bajgrowicz &...
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180 views

Cumulative returns of rolling returns

So say I have a series of 252 period rolling simple returns. How can I work out real cumulative returns from that? Is it possible? $$\ \frac{P_{252}}{P_0}-1 , \frac{P_{253}}{P_1}-1, \frac{P_{254}}{...
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The diffrence when calcaualting portfolio return between manual cacluation and Return.excess() from 'PerformanceAnalytics' packages in R

Hi I have a basic question about using Perforamnce Anayltics packages from R. I'm trying to get a portfolio return (time series data) and the return data is 'tan_data'. I have assigned return to 'w' ...
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24 views

Subtracting dividend return from return in gross return

Given the following equation: $q = \frac{R - d - c}{u - d}$ this is the derivation of one of the risk-neutral measures used in calculating the fair value of a call option. I have the following ...
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1answer
367 views

Total Return Swaps and Borrow Cost Relationship

If an investor is long a Total Return Swap (TRS), they get the total return (ie, including dividend) performance and usually pay LIBOR minus a spread. This spread should trade ...
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1answer
157 views

Calculating intraday returns from imperfect data in R [closed]

The aim is to calculate minute returns in R. Given is minute price data in a tbl_df. A row was only added if there actually were trades. ...
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1answer
85 views

portfolio returns when portfolio value is negative

I am being very stupid probably but I don't understand the following. Portfolio 1st Jan valued: -$100 A month later Portfolio 1st Feb valued: -$45 I calculate the return of the portfolio as, <...
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1answer
266 views

Empirical duration and convexity for bonds using linear regression

I have a given time series of bond yields from Quandl. From the time series, I have taken a sample to simulate a path of bond yields by Monte Carlo in Python. I have to do the following task: "...
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What can cause autocorrelation in higher lag orders of returns?

I am fitting an AR(p) model to the daily time series of S&P500 returns. I have examined AIC/BIC up to 5 lags and both show that model with 2 lags is optimal. However, when I examine the residuals ...
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Have any other factor “styles” which explain equity returns been uncovered?

I know this is an inherently broad question, so I will attempt to clarify what I mean by factor "styles". I am not looking for a compendium of "anomalies", per se, but rather for categorical themes ...
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1answer
33 views

Portfolio return through beta [closed]

Considering the beta value of the three assets in my portfolio simulation and the weights of the assets, i have computed the beta of the portfolio itself. How can i calculate the expected return of ...
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0answers
314 views

How does this return decomposition work?

http://image-src.bcg.com/Images/BCG-Value-Creators-2017-Appendix-July-2017_tcm9-166061.pdf The paper here decomposes total shareholder return into different components. Here is my derivation of the ...
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2answers
330 views

Ways to calculate daily returns

A complete rookie here. I'm currently reading Ernie Chan's 'Algorithmic Trading' and trying to recreate his results with quantstrat in R. Everything seems to be fine except for portfolio return ...
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1answer
50 views

Problems with Money Weighted Rate of Return [closed]

The market value of a small pension fund’s assets was 2.7m on 1 January 2000 and 3.1 m on 31 December 2000. During 2000 the only cash flows were: Bank interest and dividends totalling 125,000 ...
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2answers
229 views

Estimation Risk-Neutral Variance of Returns

I am trying to find a method which allows me to estimate $Var_{\mathbb{Q}}\left(\frac{S_{t_{i+1}}}{S_{t_i}}\right)$ where $S$ denotes the price process of an underlying stock (which has to be assumed ...
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80 views

Intuitive explanation of geometric mean

Suppose that the 10 Year Treasury Yield Rate varies every trading day during the year X1 (which in practice is accurate) what is the intuitive explanation behind calculating the geometric mean using ...
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2answers
96 views

Price is Log-normal distributed, yet the return is non-normal

I have a price series. The natural logarithm of the price shows good normality. As shown in the standardized normal probability plot below: However, by viewing the standardized normal probability ...
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2answers
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Does forecasting asset returns by default assumes non-stationarity of asset returns?

If we assume the assets returns are stationary then the best forecast can only be the mean of the distribution. But if we assume non-stationarity we are forecasting the mean parameter (assuming ...
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1answer
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Is the Fama-French website data free of the serious selection bias pre-1962 where it's tilted toward big historically successful firms?

Fama and French use data starting in 1963 in both 1) "Common risk factors in the returns on stocks and bonds" (1993) and 2) "The cross-section of expected stock returns" (1992) and mention in (2) ...
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1answer
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Why do Fama French's “Common risk factors in the returns on stocks and bonds” use data starting in 1963? Availability or convenience for results?

What is the reason Fama French's "Common risk factors in the returns on stocks and bonds" use data starting in 1963? Was it availability or convenience for results?
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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
107 views

Simple Compounding vs Continuous Compounding in return series

I'm creating a log price series in MATLAB. This is fairly easy to do using standard functions. Given a price series prices: ...
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29 views

Average return per period for a total loss

Short version: Is there a meaningful notion of "average return per period" for an investment whose value falls to zero over time? Long version: Call the gross return on an investment the ratio $\...
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1answer
264 views

How are Fama French Factor Returns for the last 3 and 12 months calculated?

In the Fama/French data library the monthly research factors for the Fama-French-3-Factor-Model and the Fama-French-5-Factor-Model are presented. I don't see how they are calculating the factor ...
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1answer
235 views

What are necessary adjustments to returns in CRSP?

I guess this is a pretty straight forward and basic question. I am using the entire CRSP universe from 1962-2016 and my goal is to replicate a research paper. However, I realized that the average (...
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1answer
243 views

Getting monthly return using quantmod, if input ticker is a variable

I am new to package quantmod and quandl. I encountered a problem while I was trying to fetch period return data. Below is my ...
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1answer
1k 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
96 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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1answer
243 views

How to calculate the annual contribution of a fund to a portfolio of funds?

let's assume I have a portfolio of two funds (call them F1 and F2), where, by convention, there is a monthly compounding of the returns. On a monthly basis, the contribution of each fund will just be ...
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1answer
36 views

Should the valuation decision of the following question be undervalued or overvalued?

The official solution to this question is B, but I don't understand that if the recommendation is given by the CAPM model, then the CAPM estimated return should be regarded as "fair" and benchmark for ...
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Meaning of realized variance

Recently I encountered the realized variance of returns (computed as the sum of the squared returns). Something that i didn't fully understand is what is the meaning of this? what is the difference ...
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93 views

Simulating asset returns: (Academia) state of the art

I want to run some simulation studies of (linear) factor models and for that reasons I am wondering about the features such a simulation should contain - every suggestion is welcome, I'll do my best ...
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2answers
191 views

Portfolio returns with unequal asset return histories

Using the package PerformanceAnalytics in R, I am trying to calculate the return of an equal-weighted portfolio that contains 30 assets. However, these assets do not have the same starting point in ...
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1answer
301 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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Understanding pooled VAR model

I encountered a paper by Vuolteenaho (2002) in which he uses pooled VAR model. I have some troubles understanding the idea. He uses firm level variables (log returns, ROE, etc.) and ultimately he ...
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1answer
444 views

average return Vs cumulative return interpretation

I am looking for the interpretation which distinguishes between average return and cumulative return. I have two portfolios : the average return of portfolio 2 = 3 10E-4 per day while the average ...
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236 views

What are the essential characteristics of asset prices?

I think the question has already been asked about stylized facts of asset returns; this question regards the essential characteristics and normative assumptions used to evaluate asset prices. I.e., ...
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2answers
163 views

Questions on continuously compounded return vs long term expected return

I have reading a paper from Oliver Grandville on long term expected return. I am trying to reconcile what I am reading in that paper vs what I see under "Application to Stock Market" in Kelly ...
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1answer
176 views

Looking at distribution of yearly returns of time series

For S&P, or any time series for that matter. When doing analysis on the distribution of the yearly returns, should I be looking at 1) the daily year over year values, 2) pick some starting point ...
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1answer
39 views

Aggregation to MSCI world return from subindicies

I have Bloomberg Data PX_LAST for the MSCI world (MXWO Index). I also have Bloomberg Data PX_LAST for all subindices for the ...
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1answer
58 views

Ljung_Box Statistic of R and R^2 values in Return analysis

I have found a result that I find truly puzzling. Here is an extract from a GARCH-Analysis I have performed: Test______________Statistic_______p-Value Ljung-Box Test_____R Q(10)_____0....
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1answer
239 views

Predict probability of returns: How does changing volatility affect the return pdf?

I am trying to predict the future probability of stock returns based on the return distribution. Therefore I calculate the returns as $\frac{P(t)}{P(t-1)}$ for the whole daily data and fit a ...
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0answers
248 views

kalman filter for a multifactor model in R

I am trying to set up a time varying factor model for the purpose of return decomposition via kalman filter. Following this example and slightly modifying it so as to accommodate for more than one ...
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1answer
481 views

How does one create an alpha signal

I am curious and want to do some personal research into alpha signals, but I couldn't find much relevant information. What I think will be the way to is to start with a return series, build a long- ...
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1answer
228 views

Granger causality with stocks and CDS

I would like to take a closer look at stock prices and CDS spreads of different entities. Because both of them are nonstationary in levels, I use log stock returns and the first difference of the CDS. ...
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1answer
216 views

Momentum strategy cumulation of K-monthly returns over multiple months [duplicate]

In a momentum strategy, every month you form a portfolio of winners. Each of these portfolio you hold for K months. So after K months you sell the 1st portfolio, after K+1 months you sell the next and ...
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227 views

Regressing non-USD returns on FF 3-factor returns

I am analysing some portfolio returns from the perspective of a Danish investor, i.e. in the local currency, DKK. I want to regress portfolio returns in DKK on the returns of a 3 factor Fama & ...