Abnormal Return Definition
In the realm of investments and finance, an abnormal return refers to the earnings generated over a given period, which deviate from the expected rate of return. These returns are typically not predicted by market models and are thus regarded as ‘abnormal’.
Abnormal Return Key Points
- Abnormal returns are deviations in the expected return of an investment.
- They are considered ‘abnormal’ as they differ from the return predicted by market models or the average market return.
- Investors aim to achieve abnormal returns through various strategies, including market timing and portfolio selection.
- These returns can occur both in traditional financial markets and in cryptocurrency markets.
What is Abnormal Return?
An abnormal return is a term used to describe the returns of an investment that differ from the predicted or expected return. The term is often used in finance to quantify the impact of a particular event on the value of an investment.
Why is Abnormal Return significant?
Abnormal returns are significant in the world of investing as they represent a gain or loss that was not expected. These returns are the outcomes of a strategy or occurrence that outperforms or underperforms relative to a certain benchmark.
How is Abnormal Return calculated?
The abnormal return is calculated by subtracting the expected return from the actual return. In some cases, the expected return may be a specific return rate, while in other cases, it could be the average market return.
When can Abnormal Return occur?
Abnormal returns can occur anytime there is a deviation in the expected and actual return of an investment. These can be a result of various events or circumstances such as market trends, investor behavior, or company-specific news.
Who benefits from Abnormal Return?
Investors are primarily the ones who benefit from abnormal returns. These individuals or entities use various strategies, market research, and analysis to earn these superior returns. Investments yielding abnormal returns can greatly enhance the performance of their portfolio.
Where can Abnormal Return be observed?
Abnormal returns can be observed in any type of investment, including stocks, bonds, commodities, mutual funds, and cryptocurrencies. Significant events or changes in the financial market or specific sectors often result in abnormal returns as these can affect the value of investments.
