Holding Period Return
Encyclopedia
In finance
, holding period return (HPR) is the total return on an asset
or portfolio
over the period during which it was held. It is one of the simplest measures of investment performance
.
HPR is the percentage by which the value of a portfolio (or asset) has grown for a particular period. It is the sum of income
and capital gains divided by the initial period value (asset value at the beginning of the period).
HPR = ((Present Value, or face Value, End-Of-Period Value) + (Any Intermediate Gains eg. Dividends) - (Initial Value)) /(Initial Value)
To the right is an example of a stock investment of one share purchased at the beginning of the year for $100. At the end of the first quarter the stock price is $98. This is a capital loss. The stock share bought for $100 can only be sold for $98, which is the value of the investment at the end of the first quarter. The first quarter return is:
($98 – $100 + $1) / $100 = -1%
Since the final stock price is $99, the annual ROI is:
($99 ending price - $100 beginning price + $4 dividends) / $100 beginning price = 3% ROI.
If the final stock price had been $95, the annual ROI would be:
($95 ending price - $100 beginning price + $4 dividends) / $100 beginning price = -1% ROI.
Annualized HPR = (((Present Value, or face Value, End-Of-Period Value) + (Any Intermediate Gains eg. Dividends) - (Initial Value)) /(Initial Value)) + 1 ) ^ ( 1 / (Years) ) - 1
t being number of years that have passed. For example, if you have held the item for half a year, year would equal 1/2.
If HPR1 through HPR4 are the holding period returns for four consecutive periods, the annual HPR is calculated as follows:
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
, holding period return (HPR) is the total return on an asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
or portfolio
Portfolio (finance)
Portfolio is a financial term denoting a collection of investments held by an investment company, hedge fund, financial institution or individual.-Definition:The term portfolio refers to any collection of financial assets such as stocks, bonds and cash...
over the period during which it was held. It is one of the simplest measures of investment performance
Investment performance
Investment performance is the return on an investment portfolio. The investment portfolio can contain a single asset or multiple assets. The investment performance is measured over a specific period of time and in a specific currency....
.
HPR is the percentage by which the value of a portfolio (or asset) has grown for a particular period. It is the sum of income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
and capital gains divided by the initial period value (asset value at the beginning of the period).
HPR = ((Present Value, or face Value, End-Of-Period Value) + (Any Intermediate Gains eg. Dividends) - (Initial Value)) /(Initial Value)
Example
| End of: | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter |
|---|---|---|---|---|
| Dividend | $1 | $1 | $1 | $1 |
| Stock Price | $98 | $101 | $102 | $99 |
| Quarterly ROI | -1% | 4.08% | 1.98% | -1.96% |
| Annual ROI | 3% |
To the right is an example of a stock investment of one share purchased at the beginning of the year for $100. At the end of the first quarter the stock price is $98. This is a capital loss. The stock share bought for $100 can only be sold for $98, which is the value of the investment at the end of the first quarter. The first quarter return is:
($98 – $100 + $1) / $100 = -1%
Since the final stock price is $99, the annual ROI is:
($99 ending price - $100 beginning price + $4 dividends) / $100 beginning price = 3% ROI.
If the final stock price had been $95, the annual ROI would be:
($95 ending price - $100 beginning price + $4 dividends) / $100 beginning price = -1% ROI.
Over multiple years
To annualize a holding period return (translate it into percentage per year), thenAnnualized HPR = (((Present Value, or face Value, End-Of-Period Value) + (Any Intermediate Gains eg. Dividends) - (Initial Value)) /(Initial Value)) + 1 ) ^ ( 1 / (Years) ) - 1
t being number of years that have passed. For example, if you have held the item for half a year, year would equal 1/2.
From quarterly holding period returns
To calculate an annual HPR from four quarterly HPRs:If HPR1 through HPR4 are the holding period returns for four consecutive periods, the annual HPR is calculated as follows: