[R-sig-finance] Fund ratios with lagged correlations

[Dirk Eddelbuettel]

On 9 March 2006 at 15:43, Enrique Bengoechea wrote:
| Hi, I'm having a problem computing funds ratios such as alpha, beta, tracking error, etc, and maybe the list wisdom can be of help  :-)
| 
| I have daily NAVs and values of luxembourg funds and their benchmarks. Most funds investing in the US have a delay on its NAV of 1 day with respect to benchmarks such as S&P500. I find this easily using the ccf function, and then I just compute the ratios
| of the delayed (returns of the) NAVs with respect to (returns of) the benchmark.
| 
| The problem is that with some markets (e.g. south american funds) the correlation between the fund and its benchmarks is splitted between the current day and the previous day. I find this by testing that none of the series exhibits significant serial
| autocorrelation, but the cross-correlations are high for both the 0 and 1 lag (say 0.5 and 0.5, or 0.7 and 0.4). With products that trade continuously I can solve this problem by taking into account timezones and using prices at specific times of the day,
| but with funds and many indexes only end-of-day values are available.
| 
| Has someone faced this problem? How do you adapt the beta/correlation/etc computations to handle this issue and come up with sensible estimates? Any paper dealing with this topic?

I'd try the ccf() over longer return periods -- say two-day returns or
five-day returns.

Hope this helps,  Dirk

-- 
Hell, there are no rules here - we're trying to accomplish something. 
                                                  -- Thomas A. Edison