- The dollar-weighted return, which takes into account the timing, direction, and magnitude of contributions and withdrawals, is the return the investor actual receives. The buy-and-hold or time-weighted return, which is used in performance reporting, eliminates the impact of client-initiated cash flows. If an investor buys a fund and holds it, making no contributions or withdrawals during the measurement period, then the dollar-weighted return equals the time-weighted return.
Basu, Sanjoy. 1977. “Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis.” Journal of Finance, vol. 32, no. 3 (June):663–682.
Dichev, Ilia D. 2007. “What Are Stock Investors’ Actual Historical Returns? Evidence from Dollar-Weighted Returns.” American Economic Review, vol. 97, no. 1 (March):386–401.
Fama, Eugene F., and Kenneth R. French. 1992. “The Cross-Section of Expected Stock Returns.” Journal of Finance, vol. 47, no. 2 (June):427–465.
Hsu, Jason C. 2014. "Value Investing: Smart Beta vs. Style Indexes," Journal of Index Investing, vol. 5, no. 1 (Summer):121-126.
Hsu, Jason C., Brett W. Myers, and Ryan J. Whitby. 2014. “Timing Poorly: A Guide to Generating Poor Returns While Investing in Successful Strategies.” Available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2560434.
West, John, and Amie Ko. 2014. “Hiring Good Managers Is Hard? Ha! Try Keeping Them.” Research Affiliates (November).
The material contained in this document is for general information purposes only. It is not intended as an offer or a solicitation for the purchase and/or sale of any security, derivative, commodity, or financial instrument, nor is it advice or a recommendation to enter into any transaction. Research results relate only to a hypothetical model of past performance (i.e., a simulation) and not to an asset management product. No allowance has been made for trading costs or management fees, which would reduce investment performance. Actual results may differ. Index returns represent back-tested performance based on rules used in the creation of the index, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are not managed investment products and cannot be invested in directly. This material is based on information that is considered to be reliable, but Research Affiliates® and its related entities (collectively "Research Affiliates") make this information available on an "as is" basis without a duty to update, make warranties, express or implied, regarding the accuracy of the information contained herein. Research Affiliates is not responsible for any errors or omissions or for results obtained from the use of this information. Nothing contained in this material is intended to constitute legal, tax, securities, financial or investment advice, nor an opinion regarding the appropriateness of any investment. The information contained in this material should not be acted upon without obtaining advice from a licensed professional. Research Affiliates, LLC, is an investment adviser registered under the Investment Advisors Act of 1940 with the U.S. Securities and Exchange Commission (SEC). Our registration as an investment adviser does not imply a certain level of skill or training.
Investors should be aware of the risks associated with data sources and quantitative processes used in our investment management process. Errors may exist in data acquired from third party vendors, the construction of model portfolios, and in coding related to the index and portfolio construction process. While Research Affiliates takes steps to identify data and process errors so as to minimize the potential impact of such errors on index and portfolio performance, we cannot guarantee that such errors will not occur.
Research Affiliates is the owner of the trademarks, service marks, patents and copyrights related to the Fundamental Index methodology. The trade names Fundamental Index®, RAFI®, the RAFI logo, and the Research Affiliates corporate name and logo among others are the exclusive intellectual property of Research Affiliates, LLC. Any use of these trade names and logos without the prior written permission of Research Affiliates, LLC is expressly prohibited. Research Affiliates, LLC reserves the right to take any and all necessary action to preserve all of its rights, title and interest in and to these terms and logos.
Various features of the Fundamental Index® methodology, including an accounting data-based non-capitalization data processing system and method for creating and weighting an index of securities, are protected by various patents, and patent-pending intellectual property of Research Affiliates, LLC. (See all applicable US Patents, Patent Publications, and Patent Pending intellectual property located at http://www.researchaffiliates.com/Pages/legal.aspx#d, which are fully incorporated herein.)
The views and opinions expressed are those of the author and not necessarily those of Research Affiliates, LLC. The opinions are subject to change without notice.
©2015 Research Affiliates, LLC. All rights reserved.
Jason Hsu, Co-Founder and Vice Chairman; Research Affiliates, LLC
Vivek Viswanathan, Senior Researcher; Research Affiliates, LLC