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.
44
questions
22
votes
1
answer
9k
views
Skewness and Kurtosis under aggregation
Returns possess non-zero skewness and excess kurtosis. If these assets are temporally aggregated both will disappear due to the law of large numbers. To be exact, if we assume IID returns skewness ...
- 7,874
15
votes
3
answers
14k
views
Daily returns using adjusted close
I want to chart the daily returns of a stock, and I'm using Yahoo finance data to download historic data. I was told to use Adjusted Close, but there seems to be an issue with this.
For ANTO.L, you ...
- 253
0
votes
1
answer
3k
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 ...
- 441
28
votes
10
answers
24k
views
Should I use an arithmetic or a geometric calculation for the Sharpe Ratio?
What are the advantages/disadvantages of using the arithmetic Sharpe Ratio vs the geometric Sharpe Ratio? Is one more correct? Or is one better in certain circumstances?
- 289
27
votes
5
answers
13k
views
Should Sharpe ratio be computed using log returns or relative returns?
I am trying to reconcile some research with some published values of 'Sharpe ratio', and would like to know the 'standard' method for computing the same:
Based on daily returns? Monthly? Weekly?
...
- 2,806
7
votes
2
answers
10k
views
Fama-French Data from daily to monthly returns
Ken French on his website publishes daily, monthly and yearly returns for the Fama-French 3 Factors model which are excess market (Rm-Rf), small-minus-big (SMB) and high-minus-low (HML) returns.
I ...
- 111
4
votes
2
answers
6k
views
Fama French & Solving for Alpha
This is a question about comparing results from the Fama french 3 factor model.
I have not physically done this, but let's assume a Fama French 3 factor regression was performed for Coca-Cola (KO) ...
- 175
4
votes
5
answers
8k
views
Appropriate method for calculating negative returns on a trading strategy?
I have a cumulative profit/loss time series below for a trading strategy, what is the appropriate way to calculate the returns in percentage for such a series?
My issue is the appropriate ...
- 229
1
vote
1
answer
360
views
Return on investment in spreads
I have a hard time getting my head around this.
Let's say you have a strategy that consists in buying one future spread, for instance CL Z7-Z8 (crude oil dec17 minus dec18). It's easy to calculate the ...
- 163
9
votes
2
answers
10k
views
Definition of Return of A Long/short Portfolio
This can either be a silly question or a question with no sure rigorous answer but defined with some convention. Any way, here it is.
What is the (industrial recognized) definition of the return of a ...
- 2,511
9
votes
5
answers
7k
views
Under the CAPM, how do I deal with market returns being below the risk-free rate?
Let's say I'm using CAPM to estimate the cost of equity, so I need expected market returns for the calculations.
The standard approach is simply to compute arithmetic mean of an index (or rather its ...
9
votes
2
answers
4k
views
Quantmod: what's the difference between ROC(Cl(SPY)) and ClCl(SPY)
I feel like I'm missing something fundamental here, but I can't shake the feeling that these two series should be equivalent.
/edit: there is also dailyReturn(Cl(SPY)). I've seen all 3 of these ...
- 1,371
9
votes
2
answers
889
views
What is a reasonable upper bound on the performance of a daily trading strategy?
I am backtesting an equity trading strategy which trades only once per day. Is there a general rule of thumb for the reasonable upper bound on the rate of return of such a strategy? For example, a ...
- 766
8
votes
1
answer
792
views
Should cointegration be tested using close or adjusted close prices?
When doing cointegration tests should I use the adjusted close price or just close price for the time series?
The dividend of each stock is on different dates and can cause jumps in the data.
- 801
8
votes
3
answers
372
views
Can Gaussianity of returns depend on the time frame?
I would be interested in knowing if the fact that returns are Gaussian is disproved on all time frames, or if, for example, the 5 minute intra-day time frame could exhibits Gaussian returns assuming ...
- 367
7
votes
1
answer
14k
views
How to annualize skewness and kurtosis based on daily returns
I'm trying to annualize the four moments based on a string of daily returns (continuously compounded) for 11 years.
The formulas for the annualization of the mean and the standard deviation I did ...
- 73
5
votes
6
answers
2k
views
CAPM - Expected vs. actual returns
I'm trying to calculate alpha in excess of CAPM and have seen a few slightly different calculations for CAPM.
The primary difference I am seeing is that some equations use expected market returns (e....
- 115
4
votes
4
answers
7k
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 ...
- 81
4
votes
0
answers
3k
views
Carry Trade vs synthetic Carry Trade using forward contracts
When it comes to foreign exchange carry trade strategy, the definition is straightforward: an investor borrows 1 US-\$ in the US (low interest country) and invests that \$1 to AU (high interest ...
- 81
3
votes
3
answers
5k
views
Computing Pooled IRR from the IRRs of parts
Suppose I have two cash flows:
CF1: -10001001001100
CF2: -20020301
I can compute now:
IRR(CF1) = 10%
IRR(CF2) =-55%
IRR(CF1+CF2) = 4.46%
Is there a way to compute (or at least get a fair estimate) ...
- 75
2
votes
1
answer
2k
views
Drivers of equity returns: dividend yield, change in P/E and dividend (or earnings) growth
In an NBIM paper I read the following:
"... one can break down the total equity return into the dividend
yield (the starting valuation), the change in the P/E ratio (the
change in valuation) ...
- 21
2
votes
1
answer
481
views
T-statistics on monthly returns vs annualized monthly returns
eqI am very confused about a very basic question. This is probably more statistics than quantitative finance, but still, should be useful for this stackexchange board as well.
Let's assume I have ...
- 7,293
2
votes
1
answer
202
views
Is it always better to use the entire distribution of a financial returns series, not just $\mu$ and $\sigma$?
In finance models that use historical returns for inputs, including option pricing models, forecasting and portfolio optimization, only the statistical moments of the returns distribution, $\mu$ and $\...
- 2,885
2
votes
1
answer
1k
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 ...
- 229
2
votes
1
answer
667
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 ...
- 21
2
votes
1
answer
353
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). ...
- 21
2
votes
0
answers
467
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 ...
- 441
1
vote
2
answers
3k
views
How does one calculate carry-roll-down theoretically assuming expectations of short-term rates are realised
I am not asking for an explanation that is hugely quantitative, but rather one that is more intuitive.
I am aware that there are different assumptions that one could take when it comes to carry-roll-...
- 51
1
vote
1
answer
361
views
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 ...
- 1,561
1
vote
1
answer
375
views
Do EWMA weights remove autocorrelation in asset returns?
I know that the exponentially weighted moving average (EWMA) volatility estimator drapes a decaying weight function over historical returns in order to weight the past according to the decay of their ...
- 2,885
1
vote
2
answers
267
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 ...
- 323
1
vote
1
answer
476
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.
...
- 183
1
vote
2
answers
342
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{...
- 392
1
vote
1
answer
7k
views
What are DGTW adjusted returns?
Many papers, e.g. in The Journal of Finance, discuss DGTW adjusted returns (or DGTW abnormal returns) instead of just returns.
What are these and how does one compute them?
- 321
1
vote
2
answers
3k
views
Correlation between S&P500 returns and 10y US Treasuries yields
I'd like to investigate the comovement of stock index returns with bond yields but I don't know which return's duration to use (1-year, 1-month or anything else) to get a better view of the ...
- 11
1
vote
1
answer
180
views
How to calculate the daily rate of return for an actively traded account
I have a spot currency exchange account where the base currency is USD and where I can deposit and/or withdraw money from the account in any currency at any point in time. I can also exchange any ...
- 403
0
votes
1
answer
157
views
How to derive the sharpe ratio for an intraday strategy
I have an intraday strategy, which will place 0-5 trades for each intraday trading session. (Note that some days it will not place any trades out). The average duration of a trade is around 33 minutes....
- 133
0
votes
2
answers
473
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 ...
- 1
0
votes
1
answer
99
views
How to deal with missing stock returns?
If I want to calculate the Covariance between two stocks but there are missing days in both, how can I deal with missing data? I want to use Pairwise deletion and only use the days of which both ...
0
votes
2
answers
124
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
0
votes
1
answer
185
views
Converting international equity returns to USD
Background: I am trying to replicate some results from the Betting Against Beta paper by Frazzini & Pedersen (FP). (http://www.econ.yale.edu/~af227/pdf/Betting%20Against%20Beta%20-%20Frazzini%...
- 193
-1
votes
1
answer
849
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 ...
- 3
-2
votes
1
answer
288
views
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 ...
- 13
-2
votes
1
answer
226
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. ...
