Estimating Investors’ Realized Returns from Market Trades

Summary

This paper develops a framework for describing the average and volatility of investors’ realized returns from market sales. It relates these return characteristics to statistical moments of trade values, including their volatilities and correlations over current and past trades. The analysis proceeds through three levels: returns on an individual sale following earlier purchases, the return earned by one investor over a trading day, and returns across different investors over that day.

The resulting distribution is proposed as a market-based benchmark for investors making purchases. The description indicates a derivation of relationships among trade statistics and realized returns, rather than an empirical evaluation or a trading strategy. It does not specify assumptions, formulas, data, or how the benchmark performs in practice. Its usefulness for comparing investors or assessing outcomes therefore depends on details beyond those given in the document.

Key ideas

• The framework relates realized sale returns to moments of current and prior trade values.
• It considers return averages and volatility at the individual sale level.
• The analysis extends from single sales to investor-level returns over a trading day.
• It also characterizes returns across different investors using trade-value volatility and correlations.
• The proposed return distribution may serve as a benchmark for purchasing investors.

Tags

# Market-Based "Actual" Returns of Investors


# Market-Based "Actual" Returns of Investors









We describe how the market-based average and volatility of the "actual" return, which the investors gain within their market sales, depend on the statistical moments, volatilities, and correlations of the current and past market trade values. We describe three successive approximations. First, we derive the dependence of the market-based average and volatility of a single sale return on market trade statistical moments determined by multiple purchases in the past. Then, we describe the dependence of average and volatility of return that a single investor gains during the "trading day." Finally, we derive the market-based average and volatility of return of different investors during the "trading day" as a function of volatilities and correlations of market trade values. That highlights the distribution of the "actual" return of market trade and can serve as a benchmark for "purchasing" investors.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.