Solving the Puzzle of IRR Equation. Choosing the Right Solution to Measure Investment Success

The authors of this book published many articles in peer-reviewed professional journals, including several articles that received awards. This time, they study the problem of multiple roots of IRR equation and introduce a novel “largest root” rule for selecting the correct solution, which effectively resolves the puzzle of IRR equation. Besides this main subject of the book, other important approaches and concepts that relate to the problem and investment performance measurement are considered, such as the concept of investment context. Within this conceptual framework, the authors study and compare different methods for calculating rates of return, such as IRR, Modified Dietz, TWRR, geometric linking, NPV, MIRR, etc., and introduce improvements and generalizations of existing methods and propose several new ones. The book also considers algorithms for linking rates of return. Overall, the book provides an excellent, concise but nonetheless comprehensive, overview of investment performance measurement problems and related issues, and presents well founded solutions. The book was written for a wide audience of financial industry professionals, academics and students studying finance and investment business.