[R] Daily to Monthly Cumulative Returns

From: Rahul Kaura <rahulkaura61_at_yahoo.com>
Date: Tue, 15 Mar 2011 12:16:31 -0700 (PDT)

I want to do a daily, weekly and monthly regression between InvestmentGrade Credit Spreads (Dependent Variable) and Treasuries (Independent Variable).

My starting point is daily spread data and daily prices for US treasuries.

Should I convert the US Prices into log returns i.e. log(Pt/Pt-1) or simple daily returns (Pt/Pt-1 - 1) for this analysis.

What about Credit Spreads - credit spreads is like a return - so should I take log(spread) or simply use the spread.

Lastly , the aggregate from daily to weekly or monthly , what functions should I use - Do I aggregate the log returns or
the simple returns - do I take a simple sum or a cumulative aggregation - and how would I do it in R

I am inclined to use the log returns for everything as regressions, correlation calculations all assume normality.

But then to aggregate I would need to use the original returns (or spreads) - aggregate cumulatively - and then take the log ?

      
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