Using Dietz, Modified Dietz, and MIRR when there is negative performance

CFA Level III
#1

I do not understand why you cannot use DIetz, Modifited Dietz, and MIRR when there is negative performance. I understand that you can arrive at multiple MIRR solutions when there are positive and negative cash flows (similar to calculating an IRR).

But in the schweser tests one of the questions says that you cannot use substitutions for TWRR when there are large positive to negative swings in performance. Anyone care to explain?

Thanks

#2

Mofified dietz doesnt show large distortions in a normal market…hence substitutions for TWRR can be used…whereas when in volatile markets ,modified dietz shows large distortions in returns hence TWRR method is reliable…hence substitutions to TWRR method cannot be used in Volatile markets…

hope this helps

#3

see page 225 of CFAI book 6 on GIPS.