Return.annualized.excess: calculates an annualized excess return for comparing...

In guillermozbta/portafolio-master: Econometric tools for performance and risk analysis.

Description

An average annualized excess return is convenient for comparing excess returns.

Usage

Return.annualized.excess(Rp, Rb, scale = NA, geometric = TRUE)

Arguments

Rp	an xts, vector, matrix, data frame, timeSeries or zoo object of portfolio returns
Rb	an xts, vector, matrix, data frame, timeSeries or zoo object of benchmark returns
scale	number of periods in a year (daily scale = 252, monthly scale = 12, quarterly scale = 4)
geometric	generate geometric (TRUE) or simple (FALSE) excess returns, default TRUE

Details

Annualized returns are useful for comparing two assets. To do so, you must scale your observations to an annual scale by raising the compound return to the number of periods in a year, and taking the root to the number of total observations:

prod(1 + Ra)^(scale/n) - 1

where scale is the number of periods in a year, and n is the total number of periods for which you have observations.

Finally having annualized returns for portfolio and benchmark we can compute annualized excess return as difference in the annualized portfolio and benchmark returns in the arithmetic case:

er = Rpa - Rba

and as a geometric difference in the geometric case:

er = (1 + Rpa) / (1 + Rba) - 1

Author(s)

Andrii Babii

References

Bacon, Carl. Practical Portfolio Performance Measurement and Attribution. Wiley. 2004. p. 206-207

See Also

Return.annualized,

Examples

data(managers)
Return.annualized.excess(Rp = managers[,1], Rb = managers[,8])

guillermozbta/portafolio-master documentation built on May 11, 2019, 7:20 p.m.