Harness Money

What is an abnormal return?

An abnormal return refers to the difference between the actual return on an investment and the expected return based on the overall market performance. It measures the performance of an investment beyond what can be attributed to general market movements.

The expected return is typically estimated using statistical models or benchmark indices that represent the market’s average performance. If an investment yields a return higher than what would be expected given the market conditions, it is considered to have a positive abnormal return. Conversely, a return lower than expected is considered a negative abnormal return.

Abnormal returns are often used to evaluate the success or failure of investment strategies, such as those employed by fund managers or individual investors. Positive abnormal returns may indicate skillful investment decisions or market-beating performance, while negative abnormal returns could suggest poor investment choices or unfavorable market conditions.

It’s important to note that abnormal returns are measured relative to an expected baseline, and they can be influenced by various factors such as economic events, company-specific news, or changes in market sentiment.