Technical Document 2: A  Note  on  Annualized  Return

 

Let’s  denote:    St  as  the  observed  stock  price  at  time  t  (t  =  0,…,  T)  obtained  from  historical  data  
where  (T+1   is   the   sample   size).     To   compute   the   cumulative  return  over  the  period  T,  a  discrete  
formula  is  used:  

ST − S0
r= ,  
S0

where:  

ST  is  the  end-­‐date  price,    

and  S0  is  the  start-­‐date  price.  
 
The  annualized  return  is  obtained  by  using:  
!"
𝑅!" = (1 + 𝑟) ! − 1  

,  where  12  is  the  number  of  months  in  one  year  and  T  is  the  number  of  available  monthly  
returns.