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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14 views

How to simulate the cross-section

I am looking to simulate the whole cross-section of daily return series for 20 to 60 days. The purpose is to test some risk measures based no maximum drawdown. Thus, it needs the whole time series. ...
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128 views

Optimal predictors for 1-month returns

I am implementing a Random Forest classifier algorithm on Python for predicting future stock returns (one month). My goal is to foresee whether the cumulative returns in a month will be negative or ...
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42 views

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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24 views

PanelOLS or simple OLS?

It is probably a silly question but please assume the following. I gather hedge funds returns and I want to do a regression against few dependent variables (FF factors, etc.). In essence, I get a ...
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53 views

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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53 views

Is “time value of currency” to be accounted for in returns calculation?

A simple question: When exchanging currency in order to finance an investment, is it standard/best practice to adjusted for exchange rates when calculating the NPL of that investment? For example: I, ...
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242 views

Daily to Monthly Performance Attribution - Getting Effects to equal the Excess Return

I am building a performance attribution tool on Python to help us understand the asset allocation, stock selection effects of our fund. We are using daily price data for each component within the ...
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226 views

The use of volatility from log returns and raw return

As far as I know, we usually use log returns( $ln\frac{p_{t+1}}{p_{t}}$ ) in quantitative finance. For example, let's say we have lots of monthly log returns data, $R_m$. Then, we can get the mean ...
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115 views

Does asset volume, rather than asset returns, predict performance?

Asset returns are the most common data type used in finance. They are derived from closing price data. Ordinary level 1 data for stocks not only consists of closing prices, but also gross volume ...
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24 views

Fama Foundations of Finance today

Which could be a recent equivalent of Fama's book Foundations of Finance? By "equivalent" I mean a book which is rigorous, but without being a book on stochastic calculus; which is focused on stock ...
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56 views

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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78 views

The ratio of upside deviation to downside deviation in portfolio weighting

I've been calling this ratio "acceleration" in my head, so I'll do the same in this post. The question is, is this relationship used anywhere and if so, how? My thought process is as follows. Risk ...
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103 views

Correct calculation of returns from a pairs trade

I am trying to understand how pairs trading works but I am confused about how to go about calculating the return on the pairs trade when I reverse my positions. I have been reading 'Pairs Trading - ...
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35 views

Stock returns: Exponential time decay

I am replicating some research that uses two years of single stock returns (i.e. N= 250*2= 500) and then applies an exponential decay with a half-life of one year to these returns. Does this mean ...
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is it possible to have a leverage ratio of less than 1?

I know you can leverage to be greater than 1, but is it possible to have less than 1? Like 0.5 for example? So that this scenario could be realized? ...
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How can I find the exit equity value from my dataset (please read description and see screenshot below)

I am investigating the returns of private equity using a public market equivalent (PME) and have been given a dataset from the that has provided us with the deal level IRR, the entry equity data and ...
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73 views

Compound the monthly returns to make them quarterly [closed]

How can someone make the Kenneth French library data returns quarterly from monthly? Since they are not loq returns, then you need to compound returns rather than summing them up. I want to make the ...
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54 views

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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57 views

How can a stock have negative returns but positive 3-factor alpha?

I've come across a research paper where for a specific period of time, the portfolio has negative returns (or roughly flat returns). During this same period of time, the portfolio's Fama-French 3-...
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154 views

Calculating the daily continuously compounded return from index values

Given I have 3 index values at time $t = 0, 1 , 2$, how would I go about calculating the daily continuously compounded return? Time: $ 0, 1, 2$ Index Values: $4000, 4086, 4114$ Any help would be ...
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42 views

How can I convert rolling annual returns back to quarterly returns?

I have a series of rolling annual returns and would like to convert these back to quarterly returns, which have not been provided. Is this possible formulaically, or is something like Excel's solver ...
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44 views

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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57 views

Incremental/marginal contribution to VaR in a simulation setting

Estimating marginal contributions to VaR in a simulation setting is apparently quite difficult (see e.g. this blog post) due to issues with sampling variability. My question is whether the following ...
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173 views

Returns on the Fama-French size sorted portfolios

For my thesis, I need to replicate a specific research paper in the field of empirical asset pricing, mentioning the CAPM in particular. The data mainly consists of monthly returns on portfolios ...
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33 views

Overnight and intraday returns of stock index and ETF seem inconsistent

Figure 2 of the 2019 paper "Celebrating Three Decades of Worldwide Stock Market Manipulation" shows that 29 Jan 1993 to 31 Oct 2019, overnight returns (from close to open) of SPY were 1232% while ...
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114 views

Calculating returns with trading costs

This perhaps is an over simplification of calculating trading returns while including trading costs. I've made some assumptions - the commission for investing and extracting an investment is 1% and 2% ...
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72 views

Closing prices are predicted very well but returns are predicted poorly

I'm learning some time series analysis and forecasting techniques, I've tried to predict stock prices for Netflix but I'm very confused. At first I've tried Auto ARIMA which gave me a straight line, ...
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34 views

calculating sharpe-ratio and annualized returns

Im trying to get the sharpe ratio to be calculated daily but I can only calculate it annually, this is also happening for my annualized returns, can somebody help me please? ...
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32 views

Time and asset weighted rate of return of a portfolio

If I have a portfolio with 3 initial assets on day 1 (say, stock 1 with beginning market value of \$100, stock 2 \$150 and stock 3 \$175) and after 10 days the stock 2 is sold for \$200, how can I ...
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71 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 ...
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65 views

Optimize risk return of portfolio

I have gathered stock prices from 15 companies over a year. I calculated the averages, yearly volatilizes, and the correlation matrix. I was asked to find the optimum weight for each stock with a ...
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123 views

pairs trading algorithm with returns

I'm having a difficulty grasping how to write a pair algorithm using returns instead of prices. With price differences, I have the mean difference over a long time period. When the current price ...
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52 views

How to Calculate Discrete Currency Returns for Short Positions

I need to calculate currency returns for 1) short selling the currency and 2) going long in the currency. When going long, the currency is sold at Forward price $F_t$ and bought at spot price $S_{t+1}$...
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82 views

Which returns to use for portfolio optimiaztion?

On the base of which returns do I have to derive optimal portfolio weights of an investment strategy? More specifically, do I have to use the excess returns or just the normal returns of the ...
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96 views

Is there an issue with estimating future returns from autocorrelated returns?

I have a time series $X_t$ generated from a standard GBM $$dS_t = \mu S_t dt + \sigma S_t dW_t$$ If I take the log returns over a rolling window of length $l$ $$r^{(l)}_i = \log \left( \frac{S_i}{...
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97 views

How to calculate Money-weighted Rate of Return when there are multiple negative cash flows during investment period?

I know that when there are multiple changes of sign in the sequence of cash flows of a project, the project may have multiple IRR, which render this criterion impractical. Therefore, in such ...
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1answer
95 views

Understanding Fama Macbeth Regressions of Returns

I'm trying to understand what the Fama-Macbeth regressions of returns actually mean. The source of confusion is a 2013 Novy-Marx paper, in which he states the following: "The first specification of ...
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141 views

Bloomberg Treasuries PX_Last and daily returns

I tried to search for this specific question, although I didn’t found a conclusive answer. I have a dataset containing the yields of several T-Bills and T-Notes that were downloaded from a Bloomberg ...
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117 views

Modelling NPV with negative cashflows?

When making capital investment decisions that have cost saving implications instead of cash flow generation, is NPV still valid? For example: A state wishes to decide whether to replace a section of ...
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1answer
140 views

What does a regression of squared returns of stock on squared index returns and lags show?

We have a squared stock return at t regressed on 3 variables: squared index return, squared stock return at t-1, and squared index return at t-1. My two questions would be: 1. What does this test ...
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771 views

Value-weighted return: which date should the market-capitalization be based on?

I got a short question regarding calculating the value-weighted return of portfolios. Example: The portfolio is constructed based on the value of a certain criteria on date 31.1 (Jan 31st). The ...
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54 views

Value premium analysis - Equal or Value-weighted Portfolios?

I got a question regarding the analysis of the value premium in the U.S. stock market. The task is to use the market-to-book-value ratio to split the S&P500 in five portfolios (rank 1-100,101-200,...
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154 views

Modern Linking Algorithm for Multi Period Performance Attribution

I'm looking for a modern description of the linking algorithms used in industry arithmetic performance attribution across multiple periods. Since the sum of the active return components in arithmetic ...
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18 views

Error distribution algorithms in performance attribution

Are there any known & generally accepted methods of scaling each return in a period such that the total cumulative return equals a more desired amount? For example, 0.5 and 0.3 have a total ...
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1k views

Returns and logreturns differences

I have a time series of stock prices and I tried to calculate simple returns and log returns. However, I end up that simple returns has positive mean, but log returns has negative mean. Is it possible ...
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968 views

How to calculate standard deviation of continuously compounded four-year stock returns?

Currently I am preparing for quant interview and I encounter the following question in Heard on the street. Question: If the standard deviation of continuously compounded annual stock returns is $...
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250 views

Relationship between ROE and IRR

In the textbook I read the following: We can increase the present value of a share of common stock with a new investment only if $ROE > r$ , where $r$ is a discount rate (capitalization rate). ...
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67 views

Derivation of the formula for $m$ compounding periods per year: $(1+\frac{i}{m})^{mt}$

A dollar return with interest $i$ invested for $T$ years with compounding interest frequency of $m$ times each year is: $$1*(1+\frac{i}{m})^{mt}.$$ My Question Why do we divide $i$ by $m$? Is this ...
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48 views

How to deal with intermittent NA values in a price series when calculating returns

Let's say a have a price series for a share for the year 2000. On the 27th of July 2000, there is a missing value represented by NA. This was not a holiday or any other non trading day as other shares ...
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107 views

How are returns on Bond Funds (or ETFs) calculated?

For example, if we consider the fund "iShares Core U.S. Aggregate Bond ETF (AGG)", I am trying to figure out how the yearly/Monthly returns are being calculated. I extracted the historical NAV values ...

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