Using Thomson Reuters Eikon I can extract the monthly NAV and Dividen Payments of a fund. I would like to calculate the monthly returns of a fund now. Would this be the right approach?

Fund Date NAV Div

1       1       10   -
1       2       11    1

Return = (11+1)/10 -1 = 0.2 = 20%

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    $\begingroup$ That sounds correct. $\endgroup$ – phdstudent Sep 5 '18 at 16:02

If the dividend is received on the last day of the month then your approach $r=\frac{P_{t-1}-P_t+D}{P_{t-1}}$ is perfectly correct.

If the dividend is received at some unknown time during the month, then a minor error is introduced: the return is underestimated when the price is rising and overestimated when the price is falling. With monthly (or weekly) data this error is probably too small to worry about.

The Simple Dietz Method, which assumes that the dividend is received half-way in the month, proposes the formula $r=\frac{P_{t-1}-P_t+D}{P_{t-1}-D/2}$. As I said, this correction is probably unnecessary in your case. In my experience BTW mutual fund dividends do tend to occur in the latter part (days 20-31) of the month.

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  • $\begingroup$ Thank you for your explanation. Would you know how the return is calculated if dividends are reinvested? $\endgroup$ – user9259005 Sep 5 '18 at 18:01
  • $\begingroup$ These methods we are discussing give you "returns with dividends reinvested". $\endgroup$ – Alex C Sep 5 '18 at 18:19
  • $\begingroup$ But if we assume 3 time periods with prices: 10$, 20$, 40$ respectively and one dividend in t=1 in the amount of 10$. Then the return in t=3 would equal 100% (40/20-1). The fact that there has been in a dividend in t=1 is not reflected here. Can will still say then that we are calculating returns with reinvested dividends? I hope it is somehow clear what I mean. $\endgroup$ – user9259005 Sep 5 '18 at 18:30
  • $\begingroup$ To find the overall returns take $(1+r_1)(1+r_2)(1+r_3)-1$ and this will include the return from reinvesting the dividend from period 1. $\endgroup$ – Alex C Sep 5 '18 at 19:46

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