Abnormal return is when a security or asset has unusually high profits over a certain time period.
Abnormal return is an investment measure that takes into account the return of an investment in addition to any associated risk. It is used to compare the performance of a stock or other security to a benchmark, such as the market, or a sector-specific index. Abnormal returns are expressed as a percentage and represent the difference between the actual return and the return that would be expected if the security performed in line with the market or the index.
In essence, abnormal returns measure the excess return of an investment over and above the expected return. This excess return is also referred to as alpha. Alpha can be positive or negative, and is often used to measure the performance of a portfolio manager or a fund relative to the benchmark.
The concept of abnormal return can be used to evaluate a number of different scenarios. For example, it can be used to assess the performance of a portfolio manager relative to the market, or the performance of a stock relative to its industry peers. It can also be used to measure the performance of a particular portfolio or a particular security relative to the benchmark.
When evaluating the performance of a fund or a portfolio manager, abnormal return is calculated by subtracting the return of the benchmark from the return of the security or portfolio. This difference is then expressed as a percentage. For example, if the return of the security was 10%, and the return of the benchmark was 5%, then the abnormal return would be 5%.
The concept of abnormal return can also be used to evaluate the performance of a particular security relative to its industry peers. To do this, the average return of its peers is subtracted from the return of the security. The difference is then expressed as a percentage.
In addition to being used to evaluate the performance of a portfolio manager or a security, abnormal return can also be used to assess the performance of a particular portfolio. To do this, the average return of the portfolio is subtracted from the return of the benchmark. The difference is then expressed as a percentage.
Abnormal return can be a useful tool for investors and analysts looking to evaluate the performance of a particular security or portfolio. By taking into account the return of the security or portfolio in addition to the risk associated with it, investors and analysts can get a better sense of how well the security or portfolio is performing relative to the market or its peers.
Abnormal return can also be used to assess the performance of a portfolio manager or a fund relative to the benchmark. By taking into account the return of the fund or portfolio and the return of the benchmark, investors and analysts can get a better sense of how well the fund or portfolio is performing relative to the benchmark.
In conclusion, abnormal return is a useful tool for investors and analysts looking to evaluate the performance of a security or portfolio. By taking into account the return of the security or portfolio in addition to the risk associated with it, investors and analysts can get a better sense of how well the security or portfolio is performing relative to the market or its peers.