Return Distributions
In the very most cases, the starting point in investment performance analysis are time series of returns.
Some stylized facts of return series...
- Not IID, but virtually no autocorrelation
- High autocorrelation in absolute or squared returns
- Conditional expected returns are close to zero
- Volatility appears to vary over time
- Return distributions have fat tails
- Extreme returns appear in clusters
- Little evidence of cross-correlation between different return series, excpet for contemporary returns
- High cross-correlations between series of absolute/squared returns
- Correlations between series (=contempary correlations) vary over time
- Extreme returns accross different series coincidence
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