I have been given historical closing prices from 01/01/2014 to 01/01/2019 for five different stocks. Please explain how I can estimate expected returns and volatility from the 5-year time series.
I assume that the returns given during the period are monthly returns, for the purpose of explanation.
1. The expected return for a particular month = (return during this month / return during the previous month) - 1
2. To calculate the volatility use the excel function stddev.s(select all the cells that contain the return)
To annualize the volatility multiply the above number by sqrt(12). If the returns were daily, multiply by sqrt(252).
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