Re: Recreating the back adjusted vistorical number

[Bob Fulks <omegalist@xxxxxxxxxxxx>]

I get these numbers:

SP    1.673% per year over 300 months ending 9/30/09
SPX   7.684% per year over 300 months ending 9/30/09

This is with no dividends on SPX

You are not allowing for the effects of compounding in your calculations.

This still does not look as if it matches but it is closer.

Bob Fulks

At 03:44 PM 10/27/2009, Paratrade Systems LLC wrote:
>A "prospect" is asking me to reconcile the futures contract with the index
>price.  The back-adjusted contract should factor out (net) carry.  If
>t-bills averaged (for 24 years) 4.35% and dividends averaged 2.1%, then net
>carry = 2.25% 
>The back-adjusted contract rallied from 665 to 1052 for a gain of 58% or
>2.32%/yr.  So total return = 2.25% +2.32% =4.57%/yr for 25 years. 
>
>Here's the problem.  The S&P index actually rallied from about 175 to 1052
>WITHOUT dividends for an average return of 24%!  
>
>To get these 2 returns to match the fwd price of the index has to equal the
>start price of the back-adjusted contract but that would require a 5.5%
>carry for 25 years 175*(1+.055)^25= 667 
>
>What am I doing wrong?  Any ideas?
>
>CE