6
votes
Accepted
Risk, required return and expected volatility - what is the relationship?
I think you may be interested in this QJE forthcoming article by Ian Martin. The key idea of the article (page 5) is that the expected return on the market can be decomposed as
$E_t[R_{t+1}]-R_f = \...
- 1,886
5
votes
Accepted
best way to calculate the return
The language would matter but if performance is an issue you would want to make sure that the code is optimal. Optimized assembly code for a single return calculation looks like this (on Godbolt):
<...
- 8,438
5
votes
Am I able to find individual returns from total weighted average of returns?
You have one equation and three unknowns, as you found out this can’t work. You need at least as many independent equations as unknowns. I don’t see how you can make this idea work.
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4
votes
CDS volatility: daily return calculated by simple substraction (Pt - Pt-1)?
If I understand correctly, you are looking for the volatility of the daily change in the mark to market of a credit default swap. You are given a daily series of CDS spreads (market standard quotes, ...
- 12k
4
votes
Accepted
Currency Hedged Excess Return
I think you have the answer in the comment you made. I will again explain with the inverse exchange rate S, and let me represent the forward price of this exchange by f. And let me represent the first ...
- 6,204
4
votes
Is my data fittet to be significant?
The question you ask is in fact about what people in machine learning call overfitting:
the more you choose your "metaparameters" to provide high returns on your sample of days
the less you can trust ...
- 11.5k
3
votes
Accepted
What is a cumulative return series?
O7-30-2021 : POSTING COMMENT AS ANSWER BASED ON SUGGESTION OF RICHARD HARDY.
Hi: The cumulative return is defined as the return on 1 dollar if it had been invested in whatever asset the returns came ...
- 1,082
3
votes
CDS volatility: daily return calculated by simple substraction (Pt - Pt-1)?
Okay, here my only opinion and it's not the academic answer that you should rely on, just "on-desk experience", but anyway. Answering your question about:
...
- 221
3
votes
Accepted
variance of log return
You have the parentheses in the wrong place! The correct formula is
$$
\sigma^2 = \frac{1}{n-1}\left(\sum_{i=1}^n\ln^2\left(\frac{C_i}{C_{i-1}}\right)\right)-\frac{1}{n(n-1)}\ln^2\left(\frac{C_n}{C_{0}...
- 741
3
votes
Accepted
Single outsized daily return value creates substantive discrepancy between annualized variance calculated from daily vs monthly returns
Regarding 2:
It is common that single (or a few) return-observations
have disproportional influence on summary
statistics. See, for instance, this paper:
...
- 3,186
2
votes
Interpretation of Excess Return
They are both excess returns even though the standard convention is to talk about risk premium for $R_{t+1}-R^f$ and excess return on the market for $R_{t+1}-R_M$. If you believe in CAPM, then you ...
- 1,886
2
votes
Correlation: Use Price or Return? Return doesn't make sense
Actually prices dont make sense as they are correlated with previous samples (prices), returns are not. Better will be difference between prices, but then you dont have reference point and ...
- 491
2
votes
Sharpe Ratio with Stochastic Interest Rate?
Sure! Sharpe ratio must be defined as the return per unit risk on a zero-cost position. The notion you are referring to achieves this by assuming borrowing at a risk-free rate before investing, so ...
- 932
2
votes
Transform Fama French Returns to Euro
I would recommend you to convert your global portfolio returns into US-$
Kenneth French provides several global factor-returns for the entire global stock market of developed countries. The ...
- 2,906
2
votes
Measuring returns
You do not have to think too much about return formulas and get confused, just go to the basics. Return is simply:
$$ Return = Ending Value / StartingValue - 1 $$
Log returns are used in places ...
- 958
2
votes
How to calculate daily returns when the cumulative PnL can become negative?
Why don't you use an absolute return series, e.g. 100, -120 and 50, based on your given figures? White's reality check, permutation checks etc. will work with this type of return series just as well ...
- 2,149
1
vote
best way to calculate the return
Any difference would be negligible. On the other hand, there are statistical advantages when calculating the log return. Remember that the log return is simply the log difference of the value / price ...
- 21
1
vote
Difference between returns
how do I get these 3/6/12 month overlapping returns from my monthly return data?
Assume that you start with a bankroll of X. After % return ...
- 2,209
1
vote
How to adjust a portfolio's rate of return for contributions and withdrawals?
Usually this would be evaluated using an internal rate of return, the rate $r$ which makes the PV of inflows and outflows equal -- assuming a starting inflow of portfolio value at the start date and ...
- 2,880
1
vote
Accepted
How to calculate IRR between 2 numbers
One way to handle this gracefully is to make these assumptions:
Turning a loss into a profit is considered a positive infinite return
Turning a profit into a loss is considered a negative infinite ...
- 273
1
vote
Accepted
How can I calculate returns for three investment strategy?
Note: with options contracts, payoff is different to profit. I think something is not correct with your formula (2)
Secondly, sounds like this assignment question only requires payoff and return.
...
- 114
1
vote
How can I calculate returns for three investment strategy?
For the second strategy, your return is -100%. The call option will expire out of money, so it's worthless and you lost all of the money paid for the premium.
Value of a call option at expiration is ...
- 296
1
vote
Accepted
Calculate 6 month- return for an investment
Yep I would say that the payoff is accurate, and as for the return (P End - P Beginning) / P Beginning Gives the return on that asset.
- 114
1
vote
Long Short excess returns?
You're right, there is no difference between the long-short (LS) portfolio between two returns or two excess returns, the risk-free rate cancels out.
But there is an economic reason why we consider ...
- 15.3k
1
vote
Currency Hedged Excess Return
I have seen something similar in a multi-period context, so I will have a go though I don't see the detailed calculation that Black and Litterman might have used.
Let me first invert the exchange ...
- 6,204
1
vote
Accepted
Which are the practical implications that the continuously compounded rate of return can be smaller than the expected rate of return?
The key word in your question is compounded. The expected arithmetic return for each $\Delta t$ is $\mu$, but the growth rate is $\mu - \frac{\sigma^2}{2}$. As others mentioned, volatility reduces ...
- 509
1
vote
Accepted
Private Equity Fund Return (IRR)
Your approach is right: Take all the cash flows (outgoing with negative signs and incoming with positive sign), for unrealised take the NAV. If you don’t have NAV, then you will need to find a way to ...
- 6,204
1
vote
Accepted
Javascript calculating IRR using Newton method
The issue comes from below two variables are defined outside of do...while...
var resultValue = 0;
var irrResultDeriv = 0;
These statements need to be moved ...
- 11
1
vote
Discrepancy between total shareholder return and return calculated using adjusted share price?
RETURN
Firstly, return is based upon the amount gained over a period of time. So your calculation for a percentage return should actually be be:
(Sale price - Cost basis)/Cost Basis.
TOTAL RETURN
...
- 1,335
1
vote
Accepted
What is the distribution of percentage return in general?
What is the mapping between log return $r_l$ and arithmetic return $R_A$? It is $r_l=\ln(1+R_A)$ and $R_A=e^{r_l}-1$.
If $r_l$ has the normal distribution then $e^{r_l}$ has the lognormal ...
- 9,332
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