FM_notes_L4 Risk&Return

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1、FreyaHuFM–L42011/11Chapter9–RiskandReturn:LessonsfromMarketHistoryReturnsMonetaryTotalmonetaryreturnreturns=dividend,interestorotherincome+capitalgain(orloss)Totalcashifequityissold=dividends+endingmarketvalue–initialinvestment=initialinvestment+totalmonetaryreturn

2、=proceedsfromequitysale+dividendPercentagePercentagereturnreturns=dividendorotherincomeyield+capitalgainsyield=(dividendspaidattheendofperiod+changeinmarketvalueoverperiod)/beginningmarketvalue=(dividendspaidattheendofperiod+marketvalueatendofperiod)/beginningmarke

3、tvalue–1Div?+1??+1−??R?+1=+????●Dividendyield–percentageincomereturn●Capitalgain(orloss)–thechangeinthepriceofsharesdividedbytheinitialpriceNB.它们只差一年！●Areturnisthechangeinvalueofaninvestment.●Amonetaryreturnisthemonetarychangeinthevalueofaninvestment,suchas£2or€2.●

4、Apercentagereturnisthepercentagechangeinthevalueofaninvestment,suchas12%.HoldingHoldingPeriodReturnisthereturnyouearnfromholdinganassetformanyperiodsperiodreturnsR=(1+R1)(1+R2)...(1+Rt)...(1+RT)NB.Noneadjustfortaxes,transactioncosts,orinflationsReturnFrequency

5、statisticsdistribution–forcalculateAverage(ormean)returnsNB.Moreonnegativeside●Returndistributionssuccinctlypresentsthehistoryofaninvestment’sreturnsoveraperiodoftime.●Also,becausereturnsarerandomvariables,themostappropriatewaytodescribethemisasastatisticaldistribu

6、tion.●Becausedistributionsareinnominalterms,inflationwouldshiftthedistributiontotheright.AverageRisk-freeratestockRiskpremium:excessreturnontheriskyassetreturns1FreyaHuFM–L42011/11andrisk-freereturnsRiskVariance&Measurevariabilityordispersionstatisticsstd.var.Sto

7、ckreturndistributionsThenormaldistributionSkewnessKurtosis(曲线的峰态,峭度)MoreonGeometricGeometricaveragereturn=[(1+R1)(1+R2)(1+RT)]1/T1averagemean●Answer:whatisyouraveragecompoundreturnperyearoveraparticularperiod?returnsreturnsvs.●Tellsyouwhatyouactuallyearnedpery

8、earonaverage,compoundedannuallyArithmetic●Geometricreturnsdoaccountfortheeffectsofcompounding.meanreturnsArithmeticmeanreturn=Mean=(R1+R2++RT)/T