How Return-Adjusted Futures Nearby Series Are Constructed

Summary

The document asks how to build a return-adjusted nearby series from futures contracts. It refers to a guide that describes this approach as a way to create a continuous time series, then asks whether returns should be calculated within each individual contract and applied to historical prices to form an adjusted price history. The note does not provide an implementation or resolve that question; it frames the distinction between contract-level returns and the price transition at a roll as something that needs clarification.

No worked example, empirical evidence, or definitive construction rules are supplied. In particular, the document does not specify how to handle roll dates, which prices to use, or how to apply adjustments across contract boundaries. It is useful as a focused statement of a futures data construction problem, but readers need an external explanation or example before they can implement the method reliably.

Key ideas

• A return-adjusted nearby aims to provide a continuous futures price history.
• The document asks whether returns are computed separately within each contract.
• It also asks how those returns are used to create adjusted historical prices.
• No worked construction, roll rule, or implementation answer is provided.

Tags

# How is a return-adjusted nearby created?


# How is a return-adjusted nearby created?












I am reading Value-at-Risk Second Edition – by Glyn A. Holton

https://www.value-at-risk.net/futures-nearbys-and-distortions/

From 6.6.1 "The standard means of obtaining continual time series from futures prices is to use nearby series or simply nearbys."

In 6.6.2 (see link above) there is a guide for creating a return-adjusted nearby, I'm not sure I understand without an example. Does it mean that returns are created only for each separate contract in a nearby (not from the end of one to the start of another), and then these series of returns are multiplied by a series of historical prices, to get approximate historical prices? How exactly is this implemented?

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