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This article introduces the concept of consistent linking and algorithms for implementing this concept. Consistent linking is functionally similar to geometric linking. Geometric linking is used for calculating a rate of return for the overall period based on sub-period returns. However, geometric linking generally produces a different result from a rate of return calculated for the overall period considered as a single period.
Authors: Alexandre Chestopalov, Konstantin Chestopalov
Description
This article introduces the concept of consistent linking and algorithms for implementing this concept. Consistent linking is functionally similar to geometric linking. Geometric linking is used for calculating a rate of return for the overall period based on sub-period returns. However, geometric linking generally produces a different result from a rate of return calculated for the overall period considered as a single period. This makes the usage of geometric linking for precise calculation of a rate of return impossible if based on sub-period returns. Consistent linking, unlike geometric linking, always produces the same rate of return as if it calculated an entire period as a single one. Rates of return for sub-periods have to be calculated only once and then can be used in any combination within longer periods.
