Multiplicative models of financial returns an what we fail to get when they are disregarded

Rodolfo Apreda

No 454, CEMA Working Papers: Serie Documentos de Trabajo. from Universidad del CEMA

Abstract: This paper puts forward an alternative approach to multiplicative models and their assessment of returns out of financial assets. Firstly, it lays down an operative definition but also sets forth a commutative framework of mappings to provide foundations to such a definition. Next, the total return is split down into its linear and non-linear building blocks. Afterwards, a compatibility lemma draws a distinction between what should be meant by linear approximation and linear equivalence to the multiplicative model. Last of all, three empirical examples bring home how to profit from multiplicative models in actual practice.

Keywords: multiplicative models of returns; additive models of return; financial assets returns; linear approximation and linear equivalences (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 G30 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011-05
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ucema.edu.ar/publicaciones/download/documentos/454.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cem:doctra:454

Access Statistics for this paper

More papers in CEMA Working Papers: Serie Documentos de Trabajo. from Universidad del CEMA Contact information at EDIRC.
Bibliographic data for series maintained by Valeria Dowding ().