Money-weighted return

[nikitailebedev]

Could you please explain me what is considered ab outflow in money-weighted return and what is considered an inflow?
There was a task where a market value of a fund and dividends to its shareholders were accounted as an inflow (i.e. with the same sigh), however, dividneds is a pure outflow while market value is an inflow (just a value that stays in the fund)
Thanks.

 

[S666]

Normally the question States something like “the stock pays a dividend and the dividend does not get reinvested” so it is dealt with as a pure outflow.
If the dividend is reinvested I am not 100% sure how it is dealt with…inflow or outflow as its kind of a bit of both isn’t it…..its “inflow” if reinvested but generated through an “outflow” of dividends. I’d be interested in this answer too…
If in doubt my choice would be to classify dividends as an outflow

 

[nikitailebedev]

Yes, dividends are not reinvested, sorry, didn’t mention this.
But they also account for market balue of a fund as an outflow. Do they consider this value as a cash flow that is attributed to shareholders?
Best of luck on this Saturday and thanks for the reply!

 

[S666]

I’m not sure I understand your second post as a question, if dividends are paid and not reinvested then in the money weighted return method they are dealt with as cash outflows.
Calculating the value of a fund/stock is only required for the time weighted return as dividends attributed as “return” in period one, will raise the ending value of the stock/fund and therefore raise the starting value of the stock/fund for the second period so that they are not double counted for in effect.
aha, I think I’ve just understood your question….the value of the fund net of dividends at the end of the last money weighted period is deemed to be a cash outflow to the investor as if he sold his full holding, just in the way that the initial purchase of the fund was a cash inflow. So once all inflows and outflows are accounted for there is no investment left in the fund.