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The AIRR Approach for Investment Performance Measurement

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  • Carlo Alberto Magni

Abstract

This paper introduces a new method of investment performance analysis, based on the recent approach of Average Internal Rate of Return (AIRR). We show that the approach generates rates of return suitable for assessing both a fund´s (portfolio´s) performance and a manager´s performance. The metrics proposed are arithmetic means of holding period rates weighted by market values. The Internal Rate of Return (IRR) is shown to be a particular case of AIRR, associated with an automatically implied invested capital which has not to do with market values. Relations with the Time Weighted Rate of Return (TWRR) are investigated.

Suggested Citation

  • Carlo Alberto Magni, 2012. "The AIRR Approach for Investment Performance Measurement," Proyecciones Financieras y Valoración 9652, Master Consultores.
    • Handle: RePEc:col:000463:009652
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    File URL: http://ssrn.com/abstract=2080775
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    More about this item

    Keywords

    performance measurement; AIRR; value added; internal rate of return; time-weighted rate of return;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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