Excess Return

Excess Return is described as the amount of money that is the surplus of the risk-free rate of return encompassing a particular period of time. It also denotes the deviation between actual wealth and anticipated wealth at the end of that particular period. Excess return is thus calculated by:

Excess return (N)= actual wealth – anticipated or expected wealth (N)

Where N denotes the number of periods across which excess return is calculated.

Excess return takes into account the company’s capital from the start of the measurement period. It also credits companies with returns that their shareholders could have earned from share buybacks and dividends, and reinvested in the market. Excess returns do not take into calculations intermediate cash returns to the shareholders of a company. All companies try to maximize their excess returns.

Abnormal Return

It is the return of a portfolio that is excess of actual return over return that is anticipated at that risk level. Abnormal return in case of a diversified portfolio is its outperformance vis-a-vis the market.

Real Return

It is the return on an investment from which a certain value is subtracted due to inflation. Real return is expressed mathematically as Real return= ((1 + r)/(1 + i)-1=Є-i Where r represents the nominal return over a period and i is inflation over that specific period.

Alpha Generator

It is any security when contributed to an existent asset portfolio begets returns that are greater than a predetermined benchmark without any accompanying extra risk. The alpha generator may include any kind of security-including derivative products like futures and stock options, government bonds and foreign stocks.

Return

It is described as a gain or loss of a specific security in a given period. The return includes relative capital gains and income. Return is generally expressed as a percentage. It is believed that higher risks translate into greater returns.

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