20. Factor returns quiz

Factor returns

Forward returns

For this quiz, note that forward return refers to a return that is in the future, or “forward” in time…compared to when the alpha value was calculated. So, if the alpha values are calculated before time “t”, then the forward asset return is calculated with data that occurs later, from time t to time t plus one. We'll discuss this in a video in a little bit later in this lesson.

Looking at the source code for the alphalens:
factor_returns

The alphalens.performance.factor_returns function looks like this:

   weights = factor_weights(factor_data, demeaned, group_adjust, equal_weight)
   weighted_returns = factor_data[utils.get_forward_returns_columns(factor_data.columns)] \
       .multiply(weights, axis=0)

   if by_asset:
       returns = weighted_returns
   else:
       returns = weighted_returns.groupby(level='date').sum()

   # preserve freq, which contains trading calendar information
   returns.index.freq = factor_data.index.levels[0].freq
   return returns