This paper shows that the notion of rate of return is best understood through the lens of the average-internal-rate-of-return (AIRR) model, first introduced in Magni (2010a). It is an NPV-consistent approach based on a coherent definition of rate of return and on the notion of Chisini mean, it...

In this note we make use of theAverage Internal Rate of Return (AIRR) approach, first introduced in Magni (2010), to introduce a pair of metrics, opposed to IRR and TWRR, which measure the manager's performance and the investor's performance on the basis of the market values of the fund. We also...

The internal rate of return (IRR) is often used by managers and practitioners for investment decisions. Unfortunately, it has serious flaws: among others, (i) multiple real-valued IRRs may arise, (ii) complex-valued IRRs may arise, (iii) the IRR is, in general, incompatible with the net present...

Italian Abstract: Questo pamphlet è un breviario di sopravvivenza intellettuale per difendersi dalla disinformazione e dal mito dell'Euro. Il disegno dell'Eurozona si fonda su un'architettura economica irrazionale derivata da principi di liberismo economico che da più trent'anni sono egemonici...

A residual-income model, named Systemic Value Added (SVA), is proposed for decision-making purposes, based on a systemic approach introduced in Magni (2000, 2003, 2004). The model translates the notion of residual income (excess profit) giving formal expression to a counterfactual alternative...

This paper deals with the notion of residual income, which may be defined as the surplus profit that residues after a capital charge (opportunity cost) has been covered. While the origins of the notion trace back to the 19th century, in-depth theoretical investigations and widespread real-life...

This paper presents an axiomatization of residual income, aka excess profit, and illustrates how it may univocally engenders fixed-income or variable-income assets. In the first part it is shown that, depending on the relations between excess profit and the investor's excess wealth, a...

Practitioners and some academics use potential dividends rather than actual payments to shareholders for valuing a firm’s equity. We underline the differences between the two methods and present some arguments supporting the thesis that firm valuation with potential dividends overstate the...

This paper shows that (i) project valuation via disequilibrium NPV+CAPM contradicts valuation via arbitrage pricing, (ii) standard CAPM-minded decision makers may fail to profit from arbitrage opportunities, (iii) standard CAPM-based valuation violates value additivity. As a consequence, the...

This paper presents a new way of measuring residual income, originally introduced by Magni (2000a, 2000b, 2003). Contrary to the standard residual income, the capital charge is equal to the capital lost by investors. The lost capital may be viewed as (a) the foregone capital, (b) the capital...