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 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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Is it more accurate to analyze returns on a calendar day basis than a trading day basis?
I'm rather new to the actual practice of this kind of analysis, but it just seems wrong to me to throw Mondays' returns in with the rest without accounting for the passage of time on the weekend when ...
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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 ...
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Does the Shannon entropy of stock returns change over time?
Shannon entropy, $H(X) = -\sum_{i=1}^n p(x) \ln p(x)$ is a probabilistic measure of randomness or disorder within a random variable's probability distribution or histogram.
If we take rolling window ...
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Constructing a replicating portfolio of a long-only strategy using long-short factors
Lets say I want to estimate a replicating portfolio by doing a linear regression between the returns of a long-only portfolio and several long-short factors like Fama-French 5-factor or Betting ...
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Statistical significance of mean returns between two portfolios
Suppose I have developed two versions ($A$ and $B$) of a factor model for ranking stocks. Both versions of the model use the same scoring system: stocks are percentile ranked within a given universe ...
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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 & ...
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How do you define returns when price may be negative (electricity price)?
I'm trying to model GARCH volatility on electricity prices. Typically the first step is to use prices to obtain log returns to make them stationary. I have encountered a small problem however: ...
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Polynomial interpolation of corrected lognormal distribution
Can anyone provide a formula for a polynomial interpolation of the corrected lognormal distribution used to model returns traditionally resulting from the wrong Brownian motion generated model? ...
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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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Correlation between idiosyncratic residuals and forward returns
The classic mean-reversion strategy is to calculate an "expected return" (alpha) by computing the raw return for each security and then remove the part which you think is market driven. Statistically ...
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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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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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Matching periodicity Fama-French Factors, Portfolio Return and Risk Free rate
I am trying to replicate certain aspects of the following paper: "Does the stock market fully value intangibles? Employee satisfaction and equity prices" - Alex Edmans (2011) for three ...
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Boundaries on the single-period returns
I know that $e^{t\mu_{\operatorname{log}}-\Gamma\sqrt{t}\sigma_{\operatorname{log}}}\leq \widetilde{R}_t^S \leq e^{t\mu_{\operatorname{log}}+\Gamma\sqrt{t}\sigma_{\operatorname{log}}}$, with $\mu_{\...
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Is it possible to compute implied returns from volatility?
If we assume that, broadly speaking:
Assets in liquid markets are fairly priced to its value
Volatility is predictable (volatility clustering, GARCH, etc)
Investors are rewarded and earn a return for ...
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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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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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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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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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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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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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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 ...
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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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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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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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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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% 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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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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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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Forward returns measurment?
Is there a common approach to measure how a forward contract is performing?
Here's what I'm thinking, each day you would price your forward with the next formula.
$$
F_t = S_0 e^{-r_f T}-Ke^{-r T} = (...
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Variance of the price from returns variance
Let's say that we have the variance of the daily return at $t_0$:
$$\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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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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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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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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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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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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Novy-Marx Profitability "Excess" returns - What does Excess mean here?
I am reading Novy-Marx's paper titled "The other side of value: The gross profitability premium".
Throughout the paper, he mentions excess returns in several tables, but I cannot find any ...
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Is Total Return data for mutual funds on Bloomberg adjusted for fees/expense ratio?
I'm comparing the performance of mutual funds using monthly returns data from Bloomberg. I use the Day to Day Total Returns (Gross Dividends) field represented in Excel by ...
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How to annualise hourly returns?
I have hourly open,high,low,close candles data for a particular asset. I wrote my own algo and some back testing code that replays the data from the past hourly candles to calculate the total return ...
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What is the name of this concept/formula?
I stumbled on this not so complicated concept and couldn't figure out what it's called.
I want to buy something that costs $M$ units of money, and have to pay it in $n$ months at a rate of $\frac M n$ ...
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Calculating returns from transactions
I have a collection of client transactions representing the trades of a single portfolio across multiple securities. What I'd like to do is the calculate the accurate ROI of each security and of the ...
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How to calculate portfolio returns from assets with different valuation frequencies and return methdologies?
I have a situation in which I'd like to calculate a total portfolio return for a portfolio made up of funds with different valuation frequencies and return methodologies.
As an example, say I have a ...
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Please help me understand this dataset regarding stock prices
I am supposed to predict column E but I cannot figure out what any of these columns mean. The information provided with the dataset is as follows:
column A: past 28 week slope value
column B: past 48 ...
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Relationship between risk and return for GBM and riskless bond
Suppose we have $S$, a stock following geometric Brownian motion ($dS_t = S_t (\mu dt + \sigma dZ_t)$ for $Z =$ Brownian motion) and $B$, a zero coupon bond with rate $r$, i.e. $dB_t = rB_t dt$.
In ...
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Formula for coskewness and cokurtosis of LogN to project linear returns
I want to find the coskewness and cokurtosis of the multivariate LogN(mu, sigma) distribution from the moments of a normally distributed multivariate distribution (ie: log returns). These higher order ...
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Cumulative returns are more correlated than non-cumulative
I was just comparing two daily returns series and noted that the correlation between them is a lot higher if they are cumulated (about .95 for cumulative returns, vs .15 for non-cumulative). I feel ...
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Get the weights of porfolio variance given standard deviation
I am trying to create a Simulated Portfolio Optimization based on Efficient Frontier on 50 stocks, which you can find the csv here. Yet it already takes me several minutes to get a suboptimal solution:...
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Results of Fama MacBeth regression
I have run Fama MacBeth cross section regression of of Excess Return of stocks on Idiosyncratic volatility, the log of market capitalization, book to equity ratio and Beta. I'm getting all significant ...
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How do I maximize my expected utility of wealth?
Suppose I have a utility function say $U(p)=p^{1/2}$
and I bet on a basketball game.
I have my initial investment, payouts and probabilities of winning, how can I determine the maximum I need to bet ...
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