[R-SIG-Finance] returns convention

[david.jessop at ubs.com]

The answer of "it depends" is right.  An example of when simple returns
(i.e. price (t) / price (t-1)) are often used is in calculating tracking
error.  A related question is in calculating relative returns - should
you do the ratio of returns or the difference?

Regards,

David Jessop


Date: Mon, 08 Oct 2007 21:23:21 +1000
From: paul sorenson <sf at metrak.com>
Subject: [R-SIG-Finance] returns convention
To: r-finance <r-sig-finance at stat.math.ethz.ch>
Message-ID: <470A1329.2040102 at metrak.com>
Content-Type: text/plain; charset=ISO-8859-1; format=flowed

Is it usually assumed that references to "returns" are calculated as
diff(log(prices))?  Compared with say the simple fractional change from
one price to the next?

For example, in PerformanceAnalytics I notice that the default value of
CalculateReturns is diff(log(prices)).

I guess it probably doesn't matter much either way for small changes, I
just wanted to know if there was some common convention when I see an R
function that expects a returns vector.

cheers




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