Holding Period Return

Definition

Holding Period Return (HPR) refers to the total return earned from holding an asset or portfolio over a specific period, known as the holding period. It is usually expressed as a percentage and is particularly useful for comparing the returns of investments made at different times.

Origin

The concept of Holding Period Return originated in the field of investment analysis. As financial markets evolved, investors needed a method to measure the performance of assets held over different time periods. This metric helps investors better understand and compare the actual returns of investments.

Categories and Features

Holding Period Return can be divided into simple holding period return and annualized holding period return. Simple holding period return calculates the total return over the entire holding period, while annualized holding period return standardizes the return to an annual rate, facilitating comparison across different holding periods. The advantage of HPR is its simplicity, while its disadvantage is the lack of consideration for risk factors.

Case Studies

Case 1: Suppose an investor purchased shares of a company in January 2020 and held them until January 2023, earning a total return of 20% from dividends and capital appreciation. The holding period return is 20%. Case 2: Another investor bought the same stock in January 2021 and held it until January 2023, achieving a total return of 15%. HPR allows investors to compare the returns of investments made at different times.

Common Issues

Investors often confuse holding period return with annualized return. HPR does not account for the time factor, whereas annualized return standardizes the return to an annual rate. Additionally, HPR does not consider investment risk, so investors should use it alongside other metrics for a comprehensive analysis.