Differnce btn money weighted and time weighted return

[mokpokpo]

year 1 10%

year 2 4%

year 3 -2%

The fund manager made an investment at the beginning of every year.compared with the money weighted return,the time weighted return is

A)greater

B)less

C)same

answer: greater

Time weighted return is 3.8%

i dont get why it shoud be greater…any help.

[S2000magician]

The time-weighted return gives equal weight to each periodic return.

The money-weighted average return gives more weight to a return when there was a deposit before that return, and less weight to a return when there was a withdrawal before that return.

Here, for the money-weighted return, the 4% return gets more weight than the 10% return, and the -2% return gets more weight than the 4% return. You have the lowest weight on the highese return, and the highest weight on the lowest return: the money-weighted average will be lower, so the time-weighted average will be higher.

[mokpokpo]

Thanks s200 magician…i really appreciate…thanks

[S2000magician]

@mokpokpo

Thanks s200 magician…i really appreciate…thanks

My pleasure.

Why did you discount me by 90%?

[mokpokpo]

haaaahaaa…S2000magician…what does your name mean anyway

[S2000magician]

@mokpokpo

haaaahaaa…S2000magician…what does your name mean anyway

It means that I’m a magician who drives an S2000.

[mokpokpo]

Hi assuming the returns were

year1 1%

year2 5%

year3 10%

the money weighted return will be greater than the time weighted return…following your explanation.

[S2000magician]

Assuming he makes deposits every year, you’re correct: higher weight on the 5% return than on the 1% return, higher weight on the 10% return than on the 5% return.

You got it!

[mokpokpo]

thanks

[S2000magician]

My pleasure.

[blackjack21]

@S2000magician

The time-weighted return gives equal weight to each periodic return.

The money-weighted average return gives more weight to a return when there was a deposit before that return, and less weight to a return when there was a withdrawal before that return.

Here, for the money-weighted return, the 4% return gets more weight than the 10% return, and the -2% return gets more weight than the 4% return. You have the lowest weight on the highese return, and the highest weight on the lowest return: the money-weighted average will be lower, so the time-weighted average will be higher.

What is the rationale behind -2% being alloted more weight as compared to 4%? No where has it been mentioned that the fund manager deposits more money with every successive year. Kindly help me walk through this.

[S2000magician]

@blackjack21

@S2000magician

The time-weighted return gives equal weight to each periodic return.

The money-weighted average return gives more weight to a return when there was a deposit before that return, and less weight to a return when there was a withdrawal before that return.

Here, for the money-weighted return, the 4% return gets more weight than the 10% return, and the -2% return gets more weight than the 4% return. You have the lowest weight on the highese return, and the highest weight on the lowest return: the money-weighted average will be lower, so the time-weighted average will be higher.

What is the rationale behind -2% being alloted more weight as compared to 4%? No where has it been mentioned that the fund manager deposits more money with every successive year. Kindly help me walk through this.

Suppose that the manager deposits $100 at the beginning of each year.

Year 1: Beginning balance is $100, return is 10%, ending balance is $110, weight on the 10% return is $100

Year 2: Beginning balance is $210, return is 4%, ending balance is $218.40, weight on the 4% return is $210

Year 3: Beginning balance is $318.40, return is -2%, ending balance is $312.03, weight on the -2% return is 318.40.

The time-weighted average return is [(1.10)(1.04)(0.98)]^(1/3) – 1 = 3.8845%

The money-weighted average return is 1.9791%.

[blackjack21]

@S2000magician

@blackjack21

@S2000magician

The time-weighted return gives equal weight to each periodic return.

The money-weighted average return gives more weight to a return when there was a deposit before that return, and less weight to a return when there was a withdrawal before that return.

Here, for the money-weighted return, the 4% return gets more weight than the 10% return, and the -2% return gets more weight than the 4% return. You have the lowest weight on the highese return, and the highest weight on the lowest return: the money-weighted average will be lower, so the time-weighted average will be higher.

What is the rationale behind -2% being alloted more weight as compared to 4%? No where has it been mentioned that the fund manager deposits more money with every successive year. Kindly help me walk through this.

Suppose that the manager deposits $100 at the beginning of each year.

Year 1: Beginning balance is $100, return is 10%, ending balance is $110, weight on the 10% return is $100

Year 2: Beginning balance is $210, return is 4%, ending balance is $218.40, weight on the 4% return is $210

Year 3: Beginning balance is $318.40, return is -2%, ending balance is $312.03, weight on the -2% return is 318.40.

The time-weighted average return is [(1.10)(1.04)(0.98)]^(1/3) – 1 = 3.8845%

The money-weighted average return is 1.9791%.

Thanks S2000Magician! BTW how do I subscribe to particular posts? When I subscribe to a certain page, I am redirected to a page filled with XML codes.

[S2000magician]

@blackjack21

@S2000magician

@blackjack21

@S2000magician

The time-weighted return gives equal weight to each periodic return.

The money-weighted average return gives more weight to a return when there was a deposit before that return, and less weight to a return when there was a withdrawal before that return.

Here, for the money-weighted return, the 4% return gets more weight than the 10% return, and the -2% return gets more weight than the 4% return. You have the lowest weight on the highese return, and the highest weight on the lowest return: the money-weighted average will be lower, so the time-weighted average will be higher.

What is the rationale behind -2% being alloted more weight as compared to 4%? No where has it been mentioned that the fund manager deposits more money with every successive year. Kindly help me walk through this.

Suppose that the manager deposits $100 at the beginning of each year.

Year 1: Beginning balance is $100, return is 10%, ending balance is $110, weight on the 10% return is $100

Year 2: Beginning balance is $210, return is 4%, ending balance is $218.40, weight on the 4% return is $210

Year 3: Beginning balance is $318.40, return is -2%, ending balance is $312.03, weight on the -2% return is 318.40.

The time-weighted average return is [(1.10)(1.04)(0.98)]^(1/3) – 1 = 3.8845%

The money-weighted average return is 1.9791%.

Thanks S2000Magician!

My pleasure.

@blackjack21

BTW how do I subscribe to particular posts? When I subscribe to a certain page, I am redirected to a page filled with XML codes.

Do you mean here on AnalystForum? I have no idea. That’s a question for Chad, the site owner. There’s a contact page where you can send him a message.