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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2answers
28k views

How to calculate equally weighted market portfolio

There's two studies that test the same thing in different markets (i.e. they apply the identical methodology). They state: 1) "$R_{mt}$ is the equally weighted average stock return in the dual-listed ...
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1answer
633 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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2answers
230 views

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
41 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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4answers
1k views

Reasons for negative autocorrelation

I am working with intraday stock prices. I have found that the autocorrelation between the returns is negative (significantly so, but the value is very small). I am aware of how to interpret negative ...
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2answers
495 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
102 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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1answer
117 views

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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2answers
178 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
135 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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1answer
82 views

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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0answers
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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
231 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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0answers
31 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
692 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
551 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
3k 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
108 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
969 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
46 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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0answers
116 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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3answers
821 views

Risk-adjusted returns ratio that does not reward high risk for negative returns

Think of Sharpe ratio, Treynor ratio, or anything where (excess) returns $r$ are divided by something that represents risk, $\sigma$: $$\mathrm{performance} = \frac{r}{\sigma}$$ If the returns are ...
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1answer
680 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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5answers
7k 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 ...
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0answers
31 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
308 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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1answer
795 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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2answers
198 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
209 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
47 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
89 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
384 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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2answers
4k 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) ...
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0answers
340 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
1k 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
371 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
458 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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1answer
671 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
202 views

Getting Returns from Local Currency to USD

I want to get the daily returns in USD given returns in local currency (say Japanese Yen). Say for example, on February 3rd according to Factset, the returns of Inpex Corp (Japan) are: In USD: 0....
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0answers
341 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 & ...
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3answers
139 views

Is there a stochastic equation which can model returns according to its four moments?

The normal stochastic equation only models mean and standard deviation. For now, I'm randomly picking returns from a historical CDF of the returns. I'd like to have some flexibility when it comes to ...
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2answers
325 views

How do I estimate the volatiliy of my portfolio with an estimator that requires High, Low, Open, etc

I have obtained the daily returns of my portfolio $R^{port}_t$ using a certain strategy. Now I want to estimate the realized volatility $\sigma^{port}_t$ using the past 60 days. An obvious way to do ...
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1answer
344 views

Control for non-synchronous trading in correlations

I am trying to replicate some results from the Betting Against Beta paper by Frazzini & Pedersen. In section 3.1, Estimating Ex Ante Betas, they illustrate their approach to correlations: [we ...
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1answer
85 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%...
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3answers
13k 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 ...
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0answers
401 views

R squared statistic in predictions of returns

My question is related to an article which use predictive linear regression for the stock returns. There is told that R squared statistic of 1.6% is high. How can we measure which R squared is high? I ...
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1answer
4k views

Calculating the returns of a long/short strategy

I feel like an idiot asking this but i haven't found the answer anywhere. I have backtestest a paris trading strategy, while calculating the returns of the strategy I run into some problems when the ...
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1answer
148 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 ...
3
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1answer
99 views

Proof that linear returns aggregate across securities

I keep reading that linear returns aggregate across securities, but I'm having trouble proving it. I suspect there's some mistake in my approach; I'd appreciate some help in seeing it. Suppose we ...
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1answer
156 views

Adjusting a daily log return for a cash inflow/outflow [closed]

If I had a portfolio with one stock with an initial value of 100 and the next day the stock gained 5 and I added 50 too, would I adjust the log return this way: ln [(155-50)/100]?

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