McKinney Chapter 11 - Practice Blank

FINA 6333 for Spring 2024

1 Announcements

2 Practice

2.1 Calculate cumulative returns with all available data

2.2 Calculate total returns for each calendar year

2.3 Calculate total returns over rolling 252-trading-day windows

2.4 Calculate total returns over rolling 12-months windows after calculating monthly returns

2.5 Calculate Sharpe Ratios for each calendar year

2.6 Calculate rolling betas

Calculate rolling capital asset pricing model (CAPM) betas for the MATANA stocks.

The CAPM says the risk premium on a stock depends on the risk-free rate, beta, and the risk premium on the market: \(E(r_i) = r_f + \beta_i \times (E(r_M) - r_f)\). We can calculate CAPM betas as: \(\beta_i = \frac{Cov(r_i - r_f, r_M - r_f)}{Var(r_M - r_f)}\).

2.7 Calculate rolling Sharpe Ratios

Calculate rolling Sharpe Ratios for the MATANA stocks.

The Sharpe Ratio is often used to evaluate fund managers. The Sharpe Ratio is \(S_i = \frac{\overline{r_i - r_f}}{\sigma_i}\), where \(\overline{r_i-r_f}\) is mean fund return relative to the risk-free rate over some period and \(\sigma_i\) is the standard deviation of \(r_i-r_f\) over the same period. While the Sharpe Ratio is typically used for funds, we can apply it to a single stock to test our knowledge of the .rolling() method. Calculate and plot the one-year rolling Sharpe Ratio for the MATANA stocks using all available daily data.