You know when you calculate drawndowns in your portfolio, do you need to adjust it for cash inflows/outflows? If needed, how would you do that? thanks.
e.g.
day Portfolio value Cash Inflow(out) Drawdown
1 100 0 -
2 101 0 0
3 99 0 (99-101)/101 = -1.98%
4 100 1 (100-101)/101 = -0.99% But this is wrong, since there is 1 cash inflow
Do we need to adjust cash inflow/outflows for drawdowns?
This simplified example is quite easy to adjust but when you have a dynamic mark-to-market portfolio with millions of cash inflow/outflows per day, it gets so complicated. This is more like a question for portfolio managers and fund accountants.