[R-SIG-Finance] Returns used to compute the alpha and the beta

julien cuisinier j_cuisinier at hotmail.com
Wed Oct 29 14:36:30 CET 2008


Hello,
 
Please look at the attached example in the spreadsheet. 
 
The closest I got to "real return" if by using geometric annualization 
 
The link you sent me seems to be correct in the sense that daily returns can be seen as not compounding through the day, but I have harder to consider non compounding of daily return...
 
I guess it depends what is the underlying of the returns...for a stock, one can consider the return as compounding every minute - hence the use of geometric annualization of geometric returns...for an other investment where "return" such as interest are compounded only once a year it might be wise to use arithmetic annualization of arithmetic returns...
 
Personally, the key points is geometric annualization of an average return that make the difference - using arithmetic or geometric returns does not makes much differences...
 
 
Hope that helps
 
Rgds,
Julien
 
 
 
> Date: Wed, 29 Oct 2008 14:00:44 +0100> From: Benoit.Schmid at unige.ch> To: r-sig-finance at stat.math.ethz.ch> Subject: Re: [R-SIG-Finance] Returns used to compute the alpha and the beta> > Hello again,> > Quoting julien cuisinier <j_cuisinier at hotmail.com>:> > > (arithmetic & geometric) >> the closest to the real return (as > > (Price(252)/Price(1)-1, so what an investor would actually get over > > a year) I get is by taking geometric annualization of the log > > returns...geometric annualization of arithmetic returns still yields > > close approximation but arithmetic annualization got it off the > > chart...> >> > Just to be sure, let's use the following article as a base:> http://www.riskglossary.com/link/return.htm> > For time aggregation, they use n*z for logr.> What you are suggesting is to use (1+z)^n-1> instead of n*z.> Am I right?> > Thanks for your answer.> > _______________________________________________> R-SIG-Finance at stat.math.ethz.ch mailing list> https://stat.ethz.ch/mailman/listinfo/r-sig-finance> -- Subscriber-posting only.> -- If you want to post, subscribe first.
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