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The modified Dietz method is a measure of the ex post performance of an investment portfolio in the presence of external flows.
To calculate the modified Dietz return, divide the gain or loss in value, net of external flows, by the average capital over the period of measurement. The average capital weights individual cash flows by the length of time between those cash flows until the end of the period. Flows which occur towards the beginning of the period have a higher weight than flows occurring towards the end. The result of the calculation is expressed as a percentage return over the holding period.
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