Differnce btn money weighted and time weighted return

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mokpokpo

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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.
 
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.
 
Thanks s200 magician….i really appreciate..thanks
 
haaaahaaa….S2000magician..what does your name mean anyway
 
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.
 
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!
 
S2000magician wrote:
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.
Click to expand...
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.
 
blackjack21 wrote:
S2000magician wrote: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.
Click to expand...
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.
Click to expand...
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%.
 
S2000magician wrote:
blackjack21 wrote:
S2000magician wrote: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.
Click to expand...
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.
Click to expand...
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%.
Click to expand...


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.
 
blackjack21 wrote:
S2000magician wrote:
blackjack21 wrote:
S2000magician wrote: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.
Click to expand...
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.
Click to expand...
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%.
Click to expand...
Thanks S2000Magician!
Click to expand...
My pleasure.
blackjack21 wrote: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.
Click to expand...
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.
 
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