This paper shows that the Internal-Rate-of-Return (IRR) approach is unreliable, and that the recently introduced Average-Internal-Rate-of-Return (AIRR) model constitutes the basis for an alternative theoretical paradigm of rate of return. To this end, we divide the paper into two parts: a pars...

This paper introduces new money-weighted metrics for investment performance analysis, based on arithmetic means of holding period rates weighted by the investment's market values. This approach generates rates of return which measure a fund's or portfolio's performance and a fund manager's...

This paper tells the story of a student of economics and finance who meets a couple of alleged psychopaths, suffering from the 'syndrome of Zelig', so that they think of themselves to be experts of economic and financial issues. While speaking, they come across the concept of excess profit. The...

The internal rate of return is the prominent tool for measuring the performance of real estate asset and investment portfolios. However, it brings about some problems that make it unsatisfactory, such as (i) failing to capturing value added, (ii) being associated with implicit interim values...

The mistaken notion that the internal rate of return (IRR) and net present value (NPV) contain reinvestment rate assumptions lingers in teaching materials and corporate practice. The fact is that there are no reinvestment rate assumptions built into, or implicit to, the computation and use of...

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...

We present a model of performance measurement and attribution for delegated investments that summarizes the manager effect and the client effect on value creation. In particular, we introduce an innovative two-dimensional approach that, on one hand, detects the (manager and client) decision...

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...

We propose an innovative methodology for decomposing the value added generated by a money manager within a given assessment interval into the contributions of the manager's investment decisions made in the various periods, in order to identify the most (and the least) impactful period decisions....

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...