
1. Log returns as a matter of precision, it assume continuous compounding...which is what your security price does, so it is a better estimate of your true return ==> geometric aggregation since it is the correct one (I believe) that factor for compounding >> do it manually in excel, you will see that this formula will revert the correct final return while the "multiply by number of periods" will only revert an approximation
2. I do not do prez very often, but in a report that would be produced on the basis of returns I would have computed, I would leave log returns since they reflect better reality (even if the fund manager might not like it so much since it is usually more conservative)> Date: Mon, 27 Oct 2008 14:32:18 +0100> From: Benoit.Schmid@unige.ch> To: r-sig-finance@stat.math.ethz.ch> Subject: Re: [R-SIG-Finance] Returns used to compute the alpha and the beta> > Good morning Julien,> > julien cuisinier wrote:> >> > >> not needed on beta since annualizing the numerator (Cov(stock,mkt)) > > and denominator (Var(Mkt)) requires the same factor, i.e. *252 if you > > had daily returns at the start> > >> For alpha, since it is simply a return itself: alpha(annual) = > > ([1+alpha(daily)]^252)-1, the daily alpha in decimal form of course...> > 1. As you deal with log return why do you use this geometric aggregation> that should be used for classical net returns?> > For log return, as far as I know, the annualized value is simply> 252 * dailyLogReturn because the sum of logs is the log of the product.> > 2. You say that you always compute with log return.> But when you have to present your results, do you convert> your log returns (with exp(logR)-1) or do you let log returns> on your presentations and assumed that log returns are closed> to net returns because log(1+x) ~ x when x is small?> > Thanks in advance for your answer.> > _______________________________________________> R-SIG-Finance@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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