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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1answer
749 views

Sharpe Ratio versus Cumulative Returns

I was asked whether Sharpe Ratio was a better measure than Cumulative Returns, in the context of hedge funds. To me, personally, Sharpe Ratio is a more important measure. By definition, it tells us ...
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1answer
174 views

Multiperiod return formulae with dividends

I have a question about returns when dividends are 'paid'. Firstly, will write down some definitions: Let $P_t$ be the price of an asset at time t. Assuming no dividends the net return over the ...
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1answer
371 views

Pair trading based on cointegration - equity line

I'm preparing a project at my Uni where I have to make a simple pair trading strategy using cointegration between two stocks. I'm stuck on the equity line calculation. I have prepared opening and ...
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2answers
390 views

Portfolio Return Contribution by Sectors

I have a table containing the following fields: Date, PortfolioReturn, CashReturn, Sector1Return,...,Sector10Returns 'PortfolioReturn' is the sum of CashReturn + return contributed from 10 market ...
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1answer
177 views

How to deal with missing returns when creating value (equal) weighted returns

recently I am doing cross sectional regressions, and getting confused about missing returns. Suppose we have 100 stocks, then we want to construct a value weighted return (or equal weighted return). ...
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1answer
849 views

Log returns and GARCH models

I try to model currency rates volatility using GARCH models through the RUGARCH package in R. Starting from the observed currency rate series, I compute the log-return through: ...
2
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1answer
584 views

Predicting stock returns - in a panel data specification or by using portfolio formation strategies?

I'm working on an empirical analysis where I try to predict stock returns using weekly data. Ideally, I would like to use a panel data model like the following: $$ Y_{it}=X_{it}'\beta+\varepsilon_{it}...
2
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1answer
64 views

Attributing change in yield as a result of structural change

Suppose your portfolio has $w_0$ amount of bonds with yield $r_0$. Now you buy additional $w_1$ amount of bonds with yield $r_1$, then buy additional $w_2$ amount of bonds with yield $r_2$. ...
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4answers
2k views

compute sharpe ratio for options?

Calculating sharpe ratio for shares is a straight forward task: (average returns - risk free ) / standard deviation. However i remain baffled as to how to tackle the task for options, can someone ...
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1answer
939 views

annual excess returns from CAPM on monthly total returns

I want to calculate annual excess returns on portfolios using monthly returns for a CAPM (for the assets in the portfolio as well as for the benchmark), in order to have more information on the ...
2
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1answer
98 views

Convert Geometric Direct Alpha PME to Arithmetic Excess IRR (PME Alpha / Implied Private Premium)

As a followup to this old question, Private Equity: Direct Alpha vs Excess IRR, I have a new one. In automating PME calculations, the Direct Alpha (DA) approach is computationally simpler and ...
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2answers
151 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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1answer
147 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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1answer
331 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
188 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
553 views

Calculating Quarterly Returns using Daily Prices in R

I am trying to compute quarterly returns with daily stock prices. However, I don't want to use the quantmod function "quarterlyReturn(x)" for each single stock but instead for the whole list of stocks....
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1answer
2k views

Computing Buy-and-hold abnormal returns (BHARs) $= \prod_{t=\tau_1}^{\tau_2}(1+R_{i,t}) - \prod_{t=\tau_1}^{\tau_2}(1+R_{m,t})$

I am doing an event study and wanted to know if was going about this correctly$$ \text{BHAR}_{i(\tau_1,\tau_2)}\quad=\quad\prod_{t=\tau_1}^{\tau_2}(1+R_{i,t})~-~\prod_{t=\tau_1}^{\tau_2}(1+R_{m,t}) $$ ...
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1answer
67 views

Expected returns vs expected prices?

This may be the most stupid question ever asked here, so sorry in advance for asking it. Suppose we have a single period security which gives dividend $D_{t+1}$ and has current price $P_t$. By ...
2
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1answer
36 views

Compute the risk measured by the standard deviations $\sigma K_1, \sigma K_2, \sigma K_3$, does this have to do with weights?

Compute the risk measured by the standard deviations $\sigma K_1, \sigma K_2, \sigma K_3$ for each of the investment projects, where the returns $K_1, K_2$, and $K_3$ depend on the market scenario: $$...
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1answer
26 views

Calculating the rate of return over a year then the data for a year before does not exist

I am trying to find the growth rate of a stock over a given year. Let's say I wanted to find the growth rate from today, June 11, 2015 to June 11, 2014. This is easy enough when you have perfect ...
2
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1answer
168 views

importing columns of returns data into python from excel/csv [closed]

I'm fairly new to the quant finance space, and I was hoping to get some guidance. Say I have a csv/excel file with columns of daily returns data for various asset classes or securities (one column per ...
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1answer
570 views

De-annualizing a target alpha return

apologies if this is not the correct place for this type of question, but I just want to confirm if the following de-annualization is correct. if a manager states that he will earn 200 bps of target ...
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1answer
82 views

Can you use a t-test on bootstrapped Value at Risk (VaR) figures?

I need to compare VaR before and after the recession. I have a series of market returns for a period before, and a series of market returns for the period immediately after. Both have been ...
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2answers
730 views

Problem when calculating the daily return on a forex trade, what is the best way to do such a calculation?

I intend to calculate the daily return on my investment in forex. Assume a trader invests $\$$40 at a leverage of 100:1, so in total he is trading $\$$4000 worth of currency, and assume the position ...
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2answers
449 views

How to classify stocks by their volatility?

I would like to hear other possible ways of classifying Stocks by the Volatility of their returns. Assuming that I want to characterize each stock as Low, Medium or High Volatility Stock and assuming ...
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1answer
76 views

Weighting several returns over different time frames

I have a set of annualized returns over 4 time periods: 10yr, 5yr, 3yr and 1yr. Is there a way to weight each return to have a "more representative" return?
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1answer
409 views

Event studies using revenue data vs. measuring abnormal returns

This may be a silly question, but does there exist a methodology for examining the impact of "events" on companies that are not publicly traded? I suppose it would look at abnormal revenues rather ...
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2answers
352 views

Portfolio risk-return when assets have limited and inconsistent historical data / time series?

Lets say we have "today's" snapshot of asset allocation and need to determine the 6mo, 1 yr and 5 yr risk and returns of this portfolio. If the time series for every asset is very long, longer than ...
2
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1answer
117 views

Limits analysis

I have a few time series of models to analyse in terms of how far/close they are to their underlying limit. The limit is a simple value on the y-axis (always positive), and the series can act ...
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3answers
1k views

How to annualize dividends paid at varying intervals?

I am attempting to write a function that will calculate the annualized rate of return for individual dividends made by illiquid investments. These dividends are paid at varying intervals and the ...
2
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2answers
108 views

Distribution of simple returns vs logreturns

I understand that stock prices are conditionally modeled using a log normal distribution by the relationship $ y_t/y_{t−1}∼logN(μ_{daily},σ^2_{daily})$ $y_t∼logN(log(y_{t-1})+μ_{daily},σ^2_{...
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0answers
48 views

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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0answers
58 views

Calculate the True daily Time Weighted Return

I have an access database with records of securities in my portfolio as well as my trades for each security. My aim is to calculate the "Daily Time Weighted Return" then down the line, export it and ...
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1answer
144 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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0answers
448 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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0answers
28 views

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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0answers
302 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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0answers
547 views

Modelling log-returns and calculating the portfolio return

I know this might be a trivial question, however, I would be grateful for some clarification. I am working on weekly log-return data, doing volatility-foracasting using GARCH models and then using ...
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0answers
179 views

VAR models for log-returns?

I am wondering if Vector Autoregression (and other autoregressive models) is a sound modelling for the daily (not high-frequency!) log-returns of time series from liquid financial markets. One can ...
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0answers
1k views

How to calculate returns of backtested strategy?

Lets say I have some strategy (long/short) backtested for certain period. Strategy has entries/exits only at the end of the day and may have overnight positions hold. Now I would like to compare ...
2
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3answers
4k views

Calculate bond returns from yields

I have to construct and evaluate portfolio of bonds and stocks, namely I need to get return on portfolio, standard deviation and sharpe ratios. I have weekly data that contains stock prices, and I ...
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0answers
74 views

robust regions in grid search

I have a strategy f that takes parameters x,y (for x,y taking values in integer ranges). I get two grids (of returns and volatility values) from computing f(xi,yi) for integer ranges x1 <= xi <= ...
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0answers
290 views

trading strategy outperforms passive strategy in absolute terms, but in returns vice versa. how could this be?

Background: I want to compare two trading strategies in term of profitability. The red one is an active trading strategy, which involves many entry and exit to a specific market. The blue one is a ...
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0answers
75 views

Econometrics - Granger Causality

Suppose we have two time series, if one has autocorrelations and the other is non stationary how do we test whether they Granger cause a returns series?
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0answers
118 views

Insignificant or significant explanatory power over risk adjusted returns?

Currently iam working on my master thesis which is about risk adjusted returns in the Asia Pacific REIT market. The goal of the paper is to determine/find variables that conceive explanatory power ...
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0answers
116 views

% Return on backtest with variable positions and notional amounts

I have a 14 year backtest for a systematic strategy that uses a static notional per each position. On any given day I could have multiple positions long and short and notional long and short. How do ...
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0answers
85 views

FRA-Strategy: Make 3-month and 1-year Excess returns comparable

I am trying to analyze an investment strategy that tries to exploit the empirical difference between forward interest rates and realized spot rates. I am using FRAs to capture the difference. I am ...
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0answers
227 views

Probability Density of Returns of Bonus Certificates

Could anyone please help me with the following? I need to generate a histogram (resp. probability density) of returns of a bonus-certificate. A bonus-certificate can be replicated by an underlying ...
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2answers
355 views

Sharpe ratio: discrete or continuous returns?

The Sharpe ratio is known as $$SR=\frac{\mu-r_f}{\sigma}$$ Are these values calculated from discrete or continuously compounded returns?
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2answers
99 views

Using central limit theorem to test whether population average return is the same, before and after the recession

This is the task I have been asked to do. I've read up on what central limit theorem (clt) is, but I feel like I'm missing something. The data I have is a matrix of monthly stock returns from 50 ...