Multiplicative Models of Financial Returns an What We Fail to Get When They are Disregarded

Serie Documentos de Trabajo No. 454

28 Pages Posted: 23 Jun 2011

Date Written: May 1, 2011

Abstract

This paper puts forward an alternative approach to multiplicative models and their assessment of returns out of financial assets. Firstly, it lays down an operative definition but also sets forth a commutative framework of mappings to provide foundations to such a definition. Next, the total return is split down into its linear and non-linear building blocks. Afterwards, a compatibility lemma draws a distinction between what should be meant by linear approximation and linear equivalence to the multiplicative model. Last of all, three empirical examples bring home how to profit from multiplicative models in actual practice.

Keywords: multiplicative models of returns, additive models of return, financial assets returns, linear approximation and linear equivalences

JEL Classification: G11, G12, G17, G30

Suggested Citation

Apreda, Rodolfo, Multiplicative Models of Financial Returns an What We Fail to Get When They are Disregarded (May 1, 2011). Serie Documentos de Trabajo No. 454, Available at SSRN: https://ssrn.com/abstract=1870130 or http://dx.doi.org/10.2139/ssrn.1870130

Rodolfo Apreda (Contact Author)

University of CEMA ( email )

Department of Finance Room 612
Buenos Aires, C1054AAP
Argentina
5411 6314 3000 (Phone)
5411 4803 0429 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
65
Abstract Views
707
Rank
617,745
PlumX Metrics