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Estimating Returns On Financial Instruments: Time Versus Money‐Weighted Returns

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  • Mark Tippett

Abstract

The present paper addresses the problem of estimating returns on financial instruments when there is incomplete information about the instrument's cash flows. Two return metrics are analysed; namely, the money‐weighted return and the time‐weighted return. Returns are usually reported in the financial media on a money‐weighted basis. However, there is increasing evidence that returns measured on a time‐weighted basis are more appropriate for the evaluation of financial performance. The present note outlines the relationship between the two return metrics and examines some estimation procedures which may be used.

Suggested Citation

  • Mark Tippett, 1994. "Estimating Returns On Financial Instruments: Time Versus Money‐Weighted Returns," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 21(5), pages 729-737, July.
    • Handle: RePEc:bla:jbfnac:v:21:y:1994:i:5:p:729-737
    DOI: 10.1111/j.1468-5957.1994.tb00345.x
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    References listed on IDEAS

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