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Hello,<BR>
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Please look at the attached example in the spreadsheet. <BR>
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The closest I got to "real return" if by using geometric annualization <BR>
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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...<BR>
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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...<BR>
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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...<BR>
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Hope that helps<BR>
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Rgds,<BR>
Julien<BR>
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<BR>> Date: Wed, 29 Oct 2008 14:00:44 +0100<BR>> From: Benoit.Schmid@unige.ch<BR>> To: r-sig-finance@stat.math.ethz.ch<BR>> Subject: Re: [R-SIG-Finance] Returns used to compute the alpha and the beta<BR>> <BR>> Hello again,<BR>> <BR>> Quoting julien cuisinier <j_cuisinier@hotmail.com>:<BR>> <BR>> > (arithmetic & geometric) >> the closest to the real return (as <BR>> > (Price(252)/Price(1)-1, so what an investor would actually get over <BR>> > a year) I get is by taking geometric annualization of the log <BR>> > returns...geometric annualization of arithmetic returns still yields <BR>> > close approximation but arithmetic annualization got it off the <BR>> > chart...<BR>> ><BR>> <BR>> Just to be sure, let's use the following article as a base:<BR>> http://www.riskglossary.com/link/return.htm<BR>> <BR>> For time aggregation, they use n*z for logr.<BR>> What you are suggesting is to use (1+z)^n-1<BR>> instead of n*z.<BR>> Am I right?<BR>> <BR>> Thanks for your answer.<BR>> <BR>> _______________________________________________<BR>> R-SIG-Finance@stat.math.ethz.ch mailing list<BR>> https://stat.ethz.ch/mailman/listinfo/r-sig-finance<BR>> -- Subscriber-posting only.<BR>> -- If you want to post, subscribe first.<BR><BR><br /><hr />Express yourself inst
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