Asset ReturnsBruce D. McNevin, Ph.D.Financial Econometrics, GA.3001.008 Department of Economics New York University
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Outline•Some useful definitions.–Returns : simple, compounded and annualized –Distributions: joint, conditional, marginal–Characteristics of returns•Illustrations using R.•The Efficient Market Hypothesis–Law of Iterated Expectations•Testing Random Walk Hypotheses
Asset Returns•It is very common in finance to evaluate asset performance using returns instead of prices.•There are two reasons typically given for the use of returns:1)Return is a scale free measure of an assets performance. 2)Returns have “nicer” statistical properties then prices.•i.e. they are stationary•There are, however, a number of ways to calculate the return on an asset.