I’m completing a report for a client who asked me to review their performance measurement system and processing. They offer their clients the option of treating flows as middle-of-day events. I strongly oppose this method.
First, there’s a reduction in accuracy: we value portfolios at the start and end of day, but not at the middle. Thus, we’re not having an exact method (which we’d have with start- or end-of-day treatment) but an approximate method.
Second, I believe the reason firms choose this is simply because they can’t decide whether to use start- or end-of-day.
The answer, I truly believe, is:
- Inflows: treat as start-of-day events
- Outflows: treat as end-of-day events
and don’t bother with midday.