Definition of Abnormal return:
Periodic return on an investment portfolio that is more or less than the average return on all the stocks traded on an exchange during the same period. Compare with excess return.
Abnormal returns are essential in determining a security's or portfolio's risk-adjusted performance when compared to the overall market or a benchmark index. Abnormal returns could help to identify a portfolio manager's skill on a risk-adjusted basis. It will also illustrate whether investors received adequate compensation for the amount of investment risk assumed.
An abnormal return describes the unusual profits generated by given securities or portfolios over a specified period. The performance is different from the expected, or anticipated, rate of return (RoR) for the investment. The anticipated rate of return is the estimated return based on an asset pricing model, using a long run historical average or multiple valuations.
How to use Abnormal return in a sentence?
- An abnormal return describes the unusual profits generated by a specific security or portfolio over a period of time.
- Abnormal returns, which can be either positive or negative, determine risk-adjusted performance.
- A cumulative abnormal return is the total of all abnormal returns.
- CAR is used to measure the effect of lawsuits, buyouts, and other events have on stock prices.
Meaning of Abnormal return & Abnormal return Definition