Estimating returns on financial instruments - stochastic analysis
Article Abstract:
The present paper addresses the problem of estimating returns on financial instrument when there is incomplete information about the instrument's cash flows. However, unlike previous work in this area, it is assumed that the financial instrument's cash flows may be modelled as a stochastic function of time. This implies that the estimation error is a random variable and as a consequence, probability assessments can be made as to its likely magnitude. Using these procedures it is shown that the traditional estimating methods considerably overstate actual returns. Further, it is also shown that returns are far from normally distributed. Given these results, it is doubtful whether any credibility can be attached to the standard two parameter methods of evaluating investment performance. (Reprinted by permission of the publisher.)
Publication Name: Accounting and Finance
Subject: Business
ISSN: 0810-5391
Year: 1990
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Estimating returns on financial instruments - deterministic analysis
Article Abstract:
The present paper addresses the problem of estimating returns on financial instruments when there is incomplete information about the instrument's cash flows. The problem is shown to resolve itself as an exercise in numerical analysis. In theory, the true return is obtained as the solution of an integral equation, but since the required functions are incompletely specified, numerical estimating techniques must be applied. Alternative numerical methods are examined, each of which make different assumptions about the time series properties of the financial instrument's cash flows. It is shown that the estimated returns are highly sensitive to these assumptions and thus to the numerical technique used. (Reprinted by permission of the publisher.)
Publication Name: Accounting and Finance
Subject: Business
ISSN: 0810-5391
Year: 1989
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The inflation adjustment of corporate accounts: the case of monetary items
Article Abstract:
The sensitivity of computed loss from holding monetary items to alternative numerical estimating techniques is examined, using data from 38 companies. Estimates of the loss are robust with respect to the calculating technique used. Provided the monetary base is defined broadly, loss estimates will be robust according to the calculation method used. This is consistent with the hypothesis that these procedures provide unbiased estimates of true adjustments. The implications for studies of inflation adjustment are discussed.
Publication Name: Accounting and Finance
Subject: Business
ISSN: 0810-5391
Year: 1984
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