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A text book treatment of calculating returns on non‐traditional portfolios
Author(s) -
Hancock G.D.
Publication year - 2004
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2004.08.002
Subject(s) - portfolio , rate of return , futures contract , equity (law) , economics , financial economics , hedge fund , stock (firearms) , cash , investment (military) , position (finance) , cash flow , business , monetary economics , finance , engineering , mechanical engineering , politics , political science , law
This paper addresses a gap in traditional portfolio literature by providing techniques for identifying returns on non‐traditional portfolios. Futures contracts require daily cash flows over the holding period; these cash flows determine the rate of return. The security deposit represents a tied investment since the funds are not available for other uses and do not earn a risk adjusted return. To initiate a short option or a short stock position also requires a cash outflow. The cash outflow or equity deposit effectively constitutes an investment since the trader postpones consumption in a risky medium that does not guarantee the return of the funds. By identifying the amount of the investment and rates of returns, it is possible to extend normative investment analysis to non‐traditional portfolio holdings. This paper introduces four propositions to aid in this process.