Why would MWR can have upward (downward) bias relative to the TWR when large contributions are made just prior to a period of strong (weak) performance?
what are the other factors/scenarios that would make the MWR upward biased relative to the TWR.
any help on that?
MWR is sensitive to the timing and size of cash flows, while TWR is unaffected by external cash flow activity. The way the TWR formula is built up removes this sensitivity.
A large contribution made prior to a period of strong performance means that this relatively large cash flow is invested at a high growth rate -> Upward bias compared to TWR which is unaffected (and vice versa).