Functional Forms for Simple Linear Regression
The Log-Lin Model The Lin-Log Model The Log-Log Model Selecting the Correct Functional Form
How is Fintech used in Quantitative Investment Analysis?
Fintech generally refers to technology-driven innovation occurring in the financial services industry. Big Data The term Big Data typically refers to datasets that have the following characteristics: Sources of Big Data Big Data, therefore, encompasses data generated by the following: The three main sources of alternative data are
Other Major Return Measures and Their Applications
Gross and Net Return A gross return is the return on assets managed less any trading expenses and commissions. Gross return is intended to reflect the investment skill of the manager. Net return is a measure of what the investment vehicle (e.g., mutual fund) has earned for the investor. Net return accounts for (i.e., deducts)…
Annualised Return
Non-annual Compounding In general, with more than one compounding period in a year, we can express the formula for present value as follows: where m = number of compounding periods per year, RsR_s = quoted annual interest rate, and N = number of years. Annualising Returns A general equation to annualise returns is given, where…
Money-Weighted and Time-Weighted Return
Calculating the Money Weighted Return The money-weighted return accounts for the money invested and provides the investor with information on the actual return the investor earns on the investment. The internal rate of return is the discount rate at which the sum of present values of cash flows will equal zero. In general, the equation…
Rates of Return
Holding Period Return 0A holding period return, R, is the return earned from holding an asset for a single specified period of time. where the subscript indicates the time of the price or income; (t=0) is the beginning of the period; and (t=1) is the end of the period. A holding period return can be…
Interest Rates and Time Value of Money
An interest rate (or yield), denoted r, is a rate of return that reflects the relationship between differently dated – time – cash flows. Interest rates can be thought of in three ways: Taking the perspective of investors in analysing market-determined interest rates, we can view an interest rate r as being composed of a…