Roll Return in Schweser vs Corriculum

CFA Level II
#1

Corriculum seems to make mistake on their calculation of Roll Return.

Corriculum and Finquiz has it as (Ft - St)/ St ----- (If spot is greater than the forward price, the situation is backwardation, and the backwardation will be NEGATIVE)

While Schweser has it as (St - Ft)/ St --------------(If spot is greater than the forward, the situation is Backwardation, and the Backwardation will be POSITIVE)

Those two statements are contradictory due to the mismatch in formula.

However, in the CFA Mock exam, I think the AM, or maybe the PM, has the Roll Return expression as that of Schweser.

So I guess we are to assume mistake from Corriculum and Finquiz, thus stick with Schweser Formula…

Please share your view.

#2

The curriculum may be confusing but the logic is not different from any other source.

(Ft-St)/St

“where a negative (positive) value corresponds to a positive (negative) roll return and thus to backwardation (contango)”.

#3

Roll yield = yield from rolling forward contrcats, thus

Yield T-1 - Yield T / Yield T-1

Positive when Yield T < Yield T-1 (bacwardation)

negative when Yield T > Yield T-1 (Contango). Doesn’t matter if you start with Spot as first instance or from Forward price in period T as n-time rolled same contract.

#4

I get your explanation, but the problem lies with the question.

If you are asked what sign backwardation will have when the spot is greater than the forward.

Based on the above 2 formula’s. you will have different signs,

So, Flashback, based on your write-up, I still dont seems to get the right logic, as to which formula to actually stick with.

Maybe you should look at the PM Mock of the CFA Question 53, and apply the above two formula’s, you will arrive at different signs for backwardation.

#5

Keep the official CFAI explanation then since the exam will be organized bz CFAI not by any of third parties.

I also haven’t found such issue in CFAI Mock nor any of the material including Schweser. The related question in CFAI Mock was straightforward to me.

#6

Not having read either yet this morning – it’s early and I just awoke – is it possible that one’s describing roll return from the long’s standpoint and the other from the short’s standpoint?