Abnormal Return

An abnormal return is the difference between the actual return on an investment and the expected return. The expected return is based on the risk of the investment and the return that is typically earned by similar investments. Abnormal returns can be positive or negative.

Positive abnormal returns are returns that are higher than the expected return. Negative abnormal returns are returns that are lower than the expected return.

Abnormal returns can be caused by a variety of factors, including changes in the economy, changes in the industry, and changes in the company itself.

Abnormal returns are important because they can help investors to identify investments that are outperforming or underperforming the market. This information can be used to make investment decisions.

There are a number of ways to calculate abnormal returns. One common method is to use the following formula:

Abnormal return = Actual return - Expected return

The expected return can be calculated using a variety of methods, such as the capital asset pricing model (CAPM).

Abnormal returns can be used to measure the performance of individual stocks, as well as the performance of entire portfolios. They can also be used to identify investment opportunities and to make investment decisions.