Time Weighted Rate of ReturnThe Time Weighted Rate of Return measures the compound rate of growth over a period of time by assuming an investment at the beginning of a period and measuring the growth of market value at the end of the period. This calculation removes the money weighted effects on investments and is typically used to compare the returns of investment managers.
The following Excel worksheet Time Weighted Rate of Return in the Rate of Return.xls spreadsheet describes how to calculate the Time-Weighted Rate of Return.
The worksheet first calculates the Holding Period Return of the Cash inflow and outflow of each period.
Time Weighted Return = ((1+Holding Period Return at time 1) *
(1+Holding Period Return at time 2) *
(1+Holding Period Return at time n)) - 1
Holding Period Return is described in the next section.
Holding Period Return
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