The Essential Financial Toolkit: Tool 2 - Mean Returns
This note discusses three definitions of mean returns and highlights their different interpretations and uses. In many cases, particularly when evaluating risky assets, the concept of "mean return"¿ is meaningless and stating the type of mean return discussed, arithmetic or geometric, is essential. Also, when investors trade actively, their mean return and that of the asset in which they invest may differ, which requires yet another concept, the dollar-weighted mean return.
Collection: IESE (España)
Ref: FN-553-E
Format: PDF
Number of pages: 10
Publication Date: Aug 27, 2009
Language: English, Spanish
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This note discusses three definitions of mean returns and highlights their different interpretations and uses. In many cases, particularly when evaluating risky assets, the concept of "mean return"¿ is meaningless and stating the type of mean return discussed, arithmetic or geometric, is essential. Also, when investors trade actively, their mean return and that of the asset in which they invest may differ, which requires yet another concept, the dollar-weighted mean return.
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