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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187 views

Calculating excess returns

I would like to know if I am calculating these excess returns correctly. I have here an R dataframe with weekly 3-month treasury bill rates, and the arithmetic ...
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306 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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3k views

How to calculate “portfolio cumulative return” from individual price data and weight of them?

I'm trying to run backtest in a vectorized way using Python Pandas and need to calculate a portfolio cumulative return from price data and weight of asset data. I ...
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1answer
56 views

How does inflation impact stock returns? Academic examples

For a literature survey in my university class, I have been asked the question "How does inflation impact stock returns?". After reading some informal articles (in periodicals/ the general internet), ...
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1answer
690 views

What is the Probability Distribution of Max-Drawdown?

How to obtain the probability distribution of Maximum Drawdown, starting from the probability distribution of Daily Returns? Here the details: Suppose I have a time serie of N=1000 daily returns. ...
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1answer
132 views

How to Calculate Stock Return with Stock Bonuses and Rights?

I would appreciate if you could let me know how to calculate stock return for a given company when the company issued bonus shares and rights. If company just paid dividends, stock return would be: ...
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1answer
134 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{...
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117 views

Black Litterman - numerical instability

I am trying to work out the formula for the posterior mean in Black Litterman's model assuming 100% confidence : Ref: https://corporate.morningstar.com/ib/documents/MethodologyDocuments/IBBAssociates/...
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343 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 ...
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1answer
384 views

Return Contribution for Annual Returns

I have a portfolio $p$ made up of a bunch of assets $i$ where the weights change slowly over time. The returns over each period $j$ composed of the weighted returns of the asset $r^j_p$ $$ r^j_p =...
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330 views

How to compute bond drawdowns?

I came across a very interesting article which shows a picture with the drawdowns bondholders would have faced by investing in Fixed Income since 1919. The data is based on the Moody's seasoned AAA ...
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255 views

Is positive skewness preferences rational or irrational?

Is positive skewness preference rational or irrational? I have a great trouble understanding why investors should prefer positive skewness over negative one. Sometimes it is argued that preference ...
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1k views

Portfolio forward return

I am working on a project which needs to find portfolio return for the next m months. To begin, let say investor hold a portfolio of $N$ stocks with weight $w_i$ invested in stock $i$, what is the ...
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239 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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3answers
276 views

If markets are efficient, why are most returns systematically high?

Suppose markets are perfectly efficient and asset prices reflect all available information. Under this assumption one expects current prices to be non-biased estimators of future prices. It seems to ...
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54 views

Computing squared returns given differential equation for prices

I am looking for general advice on how to start tackling the problem below. My background in math is fairly bad when it comes to stochastic differential equations, but if you have any recommendations ...
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1answer
224 views

Variance covariance matrix - number of periods required

Hi I am reviewing the example of Barra risk model in the following document page 23 there is the statement: "Estimating a covariance matrix for, say, 3,000 stocks requires data for at least 3,...
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277 views

Monte Carlo simulation based VaR: daily vs annual parameters

I am given the initial price, annualized return, and volatility of a security. I am trying to calculate annualized VaR using Monte Carlo simulation approach. To do this I will use the following ...
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Bootstrapping to Judge the Fit of a Sampled Return Distribution

Consider the following: I have sampled yearly stock returns from a specified distribution. What I want to do is compare how well my sampled distribution fits the empirical distribution of yearly ...
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1answer
654 views

Should log returns be used in multilinear regressions?

As the title already says, should log returns, instead of simple returns, be used in regression analysis? In this case, I want to analyse the impact of specific factors (Dividend yield etc.) on the ...
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533 views

question on XIRR (excel)

Let's say we have an initial investment of -10 on 1/1/2000, and from 1/1/2001 to 1/1/2018 (with annual payments on Jan-1 of each year for 18 years) we get a CF of +2 each year with a final payment of ...
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1answer
615 views

Pandas: Close-to-Open return on stocks

I am trying to daily calculate the close-to-open return for j stocks for t days. Is there anyway I can calculate without using a for loop? I have one Dataframe for daily close prices and one for daily ...
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2answers
118 views

What returns to use?

I have monthly returns of my portfolio... I would like to summarize the performance over a longer period in one overall figure. Should I use log returns per month then use geometric mean on the log ...
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2answers
3k views

What is the difference between squared returns and variance?

I am trying to calculate 1-day ahead volatility forecasts using the exponentially weighted moving average, however I am unsure on how to read the formula provided within Risk-Metrics Technical ...
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564 views

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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1answer
219 views

Returns and Factors for European Market Kenneth French Database

I am planning to estimate Fama-French model for mutual funds with European equity scope. I am thinking about using the European factors from Kenneth French database, which are computed in USD. The ...
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Generate P Value from stationary bootstrap following Politis & Romano (1994)

For my master thesis I am analyzing the performance of trading strategies. For this I need to avoid data snooping by utilising the FDR approach. I follow closely the procedure presented by Bajgrowicz &...
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1answer
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Total Return Swaps and Borrow Cost Relationship

If an investor is long a Total Return Swap (TRS), they get the total return (ie, including dividend) performance and usually pay LIBOR minus a spread. This spread should trade ...
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1answer
312 views

Calculating intraday returns from imperfect data in R [closed]

The aim is to calculate minute returns in R. Given is minute price data in a tbl_df. A row was only added if there actually were trades. ...
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1answer
286 views

portfolio returns when portfolio value is negative

I am being very stupid probably but I don't understand the following. Portfolio 1st Jan valued: -$100 A month later Portfolio 1st Feb valued: -$45 I calculate the return of the portfolio as, <...
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1answer
784 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
237 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
45 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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0answers
756 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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2answers
550 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
118 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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2answers
602 views

Estimation Risk-Neutral Variance of Returns

I am trying to find a method which allows me to estimate $Var_{\mathbb{Q}}\left(\frac{S_{t_{i+1}}}{S_{t_i}}\right)$ where $S$ denotes the price process of an underlying stock (which has to be assumed ...
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2answers
259 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
153 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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2answers
130 views

Does forecasting asset returns by default assumes non-stationarity of asset returns?

If we assume the assets returns are stationary then the best forecast can only be the mean of the distribution. But if we assume non-stationarity we are forecasting the mean parameter (assuming ...
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1answer
126 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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1answer
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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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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
270 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
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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
523 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
710 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
860 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
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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120 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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