chunty

holden1176 Wrote:
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> If an investment has the returns listed below (the
> final period being 100% period loss) and pays out
> one dividend along the way is the time weighted
> return -100%?
>
> Assume $100 investment
>
> Q1: 10%
> Q2: -10%
> dividend of $30 (not reinvested)
> Q3: -20%
> Q4: -100%
>
>
> cumulative return = (1.1)(0.9)(0.8)(0.0)-1
>
> =-100%

In calculations of time-weighted return, the assumption is made that all cash is reinvested as you want to take out the cash flow timing component out, etc. Therefore, your example is not valid (though, time-weighted return would be -100%). With that said, you can try to modify standard time-weighted return calculation to get to a meaningful number. For example, you can assume that you started the year with $100 and ended with $30 (assume interest rate of 0). Then your cumulative return would be -70%. Or you can use modified Dietz method. To summarize: time-weighted return would not be appropriate for your example, an alternative approach should be used.