Adjusting Speculative Profits for Risk

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Adjusting Speculative Profits for Risk

• Rt Rate of return on day t, the percentage rate
  of appreciation of the DEM,
• net of the interest-rate differential
• Rin,t Rate of return on days in
• Sample Days 21 100
• Days in 41
• Mean Adjustment
• Mean of Rt 0.0001000/day
• Mean of Rin,t on days in 0.0007836/day
• Profits (Mean of Rin,t) - (mean of Rt)
  0.0006836/day
• ? 0.0006836 x 100 x 250 17.09/year
• Market Model Adjustment
• Regression over days 21 100 Rt a b RM,t
  errort
• Rt (.146 x 10 - 4) .186678 x RM,t
  errort
• Mean of RM,t on days in 0.0007252/day

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Adjusting Speculative Profits for Risk
Rt Rate of return on day t, the percentage rate
of appreciation of the DEM, net of the
interest-rate differential Rin,t Rate of
return on days in Sample Days 21 - 100
80 days Days in 41 in 41 of 80 days ?
51.25 of days Mean Adjustment Mean of Rt
0.0001000/day x 100 0.01/day x 250
2.5/year Mean of Rin,t on days in
0.0007836/day x 100 0.07836/day

x 250 19.59/year Profits (Mean
of Rin,t) - (mean of Rt) 0.0006836/day x
100 0.06836/day x 250 17.09/year ?
0.0006836 x 100 x 250 17.09/year
17.09 x (41/80) 8.7586/year Market Model
Adjustment Regression over days 21 100 Rt a
b RM,t errort Rt (.146 x 10 - 4)
.186678 x RM,t errort Mean of RM,t on days
in 0.0007252/day Market Model Adjustment
factor (.146 x 10 - 4) .186678 x (Mean
of RM,t on days in) (.146 x 10 - 4)
.186678 x 0.0007252 0.000150
versus 0.000100 Profits (Mean of Rin,t)
- Market Model Adjustment factor 0.0007836
- 0.000150 0.0006336/day as above ?
0.0006336 x 100 x 250 15.84/year
15.84 x (41/80) 8.118/year
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