Which statement best defines performance measurement?

The best definition of performance measurement is centered around the concept of determining the Rate of Return (ROR) based on investment-related changes in an account's value. This approach encompasses not only realized gains but also includes unrealized gains or losses that reflect the true performance of an investment over a particular period.

Performance measurement aims to provide a holistic view of an investment's efficacy, capturing all fluctuations in value that can impact an investor's wealth. By assessing performance through changes in the account's overall value, investors are better equipped to evaluate how well an investment strategy is working. This includes understanding both the impact of market conditions and the effectiveness of the manager's decisions.

Other options do not encapsulate the core definition of performance measurement as effectively. Tracking asset allocation changes focuses only on the distribution of assets rather than their performance outcomes. Calculating ROR based solely on realized gains ignores potential growth or decline in value that hasn't been cashed out, thus providing an incomplete picture. Measuring performance without accounting for time constraints fails to recognize the importance of timing in evaluating investment performance, particularly when comparing returns over varied periods.