Your timing was good last year. You invested more in your portfolio right before prices went up, and you sold right before prices went down. In calculating historical performance measures, which one of the following will be the largest?
A) dollar-weighted return
B) geometric average return
C) arithmetic average return
D) mean holding-period return

Question

Quizplus · Accepted Answer

The dollar-weighted return takes into account the timing and size of cash flows into and out of the portfolio, which is relevant in this scenario where the investor's timing was effective. The geometric and arithmetic average returns only consider the overall performance of the portfolio, while the mean holding-period return is focused on the return earned during a specific time period (the holding period).

Your Timing Was Good Last Year