In Case #3 we take accruals into consideration and calculate returns for each of the four days. In Case #4 we ignore the weekends, with the understanding that (a) Monday's starting value is Friday's ending, and (b) that Monday's ending value includes the accruals that occurred over the weekend. We see we get the same returns.
If Saturday or Sunday is the start or end of the month, then we want to make sure we capture any accruals that would occur on Saturday and/or Sunday.
Ironically, I think systems that calculate monthly returns probably handle the month-end better than daily, since they inherently will ensure they capture all the accruals; for daily, unless you calculate every day, you need to do some extra work to make sure they're there. Your thoughts? Am I missing something?
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I think you have this right. Life is as hard as you make it. And it's not as complicated as some see it. There are 12 months in a year, and for centuries everyone has managed to live with the very slight oddity that these time periods are evenly defined although not identically spaced. And weekends don't count - just socially!
ReplyDeleteThanks, Steve. I think we have a tendency to overcomplicate things; perhaps it's our desire to justify what we do, by making something seem so difficult. There's enough legitimately difficult stuff, without adding to it.
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