HPR vs Total return

[shanlane]

Are these the same idea?

They both seem to be:

[(Total value at end of period, including dividends, etc) / (price at beginning of period)] - 1

Am I missing somehing or does this just about sum it up?

Thanks!

Shannon

 

[David Harper CFA FRM]

Hi Shannon,

I do agree with that (CFA defines them as synonyms, fwiw), although I'm not totally sure that "total return" is very precise/descriptive (pun intended). Yes, total includes dividends/income and so does HPR ....

To me, the essence of a HPR is that's it's the simple [not compounded!] return over a sub-period of any length. For example, in estimating historical volatility, Hull switches from daily log returns, ln(S1/S0), to really daily holding period returns, u = (S1 - S0)/S1, which when extended from one-day to one-month [this is how I used to compute as a consultant] generally includes dividends: monthly holding period return = (S1 + D - S0) / S0 ... so, yes, of course the dividend gets included as the HPR should be a "total return" but to me the essence of the definition is the fact that it's a SIMPLE total return within the sub-period, whatever length that sub-period may be (daily, monthly, or annual).

in this definition, i think you will see (although I'm not sure in the FRM) HPR over a multi-year period: [P(+5 years) + D - P(0)]/P(0); i.e., consistent with the definition above, although maybe not as useful as more precise annualized rates

Hope that helps,