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For example, if security A is held for the entire 30-day period and has a return of 10 percent, the report IRR is 10 percent. However, if security B is held for three days and has a 10 percent return, the report IRR is much higher than 10 percent due to the day weighting of the cash flows.
While this basic IRR is widely accepted, analysts also need the ability to look at the return of securities based on the amount of time that each was held. So, if security A has a 10 percent return over 30 days and security B is held for three days and has a 10 percent return, the report IRR is 10 percent in both cases.
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