Excess returns

Excess Returns
Excess returns are generally defined as the returns provided by a given portfolio minus the returns provided by a risk-free asset. Excess returns are those in excess of the riskless asset.

Excess returns
Also called abnormal returns, returns in excess of those required by some asset pricing model.
Related Terms: ...

EXCESS RETURNS - Difference between an asset's return and the riskless rate. Sometimes confused with ab...
EXCESS SERVICING - A term used in asset backed securities to describe the amount by which the yield fro...

Excess returns:
Returns in excess of the risk-free rate or in excess of a market measure such as the S&P 500 index.
Expected return: ...

Excess returns
Getting more money from an economic INVESTMENT than you needed to justify investing.

excess returns: Asset returns in excess of the risk-free rate. Used especially in the context of the CAPM. Excess returns are negative in those periods in which returns are less than the risk-free rate. Contrast abnormal returns.

Average Excess Returns
The arithmetic average of the portfolio return minus the benchmark return. If and only if the portfolio beta is 1.0 or assumed to be 1.

Excess returns
The difference between asset return and riskless rate. Sometimes confused with abnormal returns, returns in excess of those required by some asset pricing model.
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The excess returns hoped for in value investing do not necessarily come at the expense of higher risk. In fact Warren Buffett argues that buying undervalued stocks significantly reduces risks in comparison to buying a market portfolio.

Related: excess returns. Absolute priority Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full before junior creditors receive any payment. Absorbed Used in context of general equities.

Beta equation (security) The market beta of a security is determined as follows: Regress excess returns of stock y on excess returns of the market. The slope coefficient is beta. Define n as number of observation numbers.

To calculate a Sharpe ratio, divide an asset's excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) by the asset's standard deviation of returns.

Related: excess returns. Above par See: Par. Absolute form of purchasing power parity A theory that prices of products of two different countries should be equal when measured by a common currency. Also called the "law of one price.

Carr and Wu (2007) examines whether the excess returns of selling or buying variance swaps can be explained using common factor models such as the CAPM model and the Fama-French factors, ...

Specifically, the prices of stocks that had performed relatively well over three- to five-year horizons tended to revert to their means over the subsequent three to five years, resulting in negative excess returns; ...

Endowments typically believe that less liquid assets provide a good source of excess returns and that an unlimited time horizon allows them to bear the liquidity risk of such investments.

Indicator that measures the stability of excess returns on an asset or group of assets relative to a benchmark. The information ratio divides this outperformance by its tracking error (i.e. the standard deviation of the outperformance).

Simply put, the ratio measures the variability of ' excess returns' (defined by returns of the fund over the 'risk less' 91 day T-bill).

This is another comparison ratio, which measures the excess returns a fund generates for each unit of market risk taken.

Absolute returns are unadjusted for risk (unlike abnormal returns) or the risk free rate (unlike excess returns) , or for anything else. This does usually make absolute returns less useful for assessing how well a strategy or manager has performed.

Further, the model suggests that the prices of ASSETS are determined in such a way that the RISK PREMIUMS or excess returns are proportional to systematic risk, which is indicated by the BETA coefficient. Accordingly, the relationship ...

Notes:
Firms who engage in proprietary trading believe they have a competitive advantage that will enable them to earn excess returns.
See also: Trade
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The information ratio (IR) measures a portfolio manager's ability to generate excess returns relative to a benchmark, but also attempts to identify the consistency of the investor.

The higher the Sharpe ratio, the better the fund's historical risk-adjusted performance. The Sharpe ratio is calculated for the past 36-month period by dividing a fund's annualized excess returns over the risk-free rate by its annualized standard ...

The part of the return dependent on the benchmark return. We can break excess returns into two components: systematic and residual. The systematic return is the beta times the benchmark excess return.
Systematic risk ...

Systematic Return
The part of the return dependent on the benchmark return. We can break excess returns into two components: systematic and residual. The systematic return is the beta times the benchmark excess return.

Abnormal returns
The component of the return that is not due to systematic influences (market-wide influences). In other words, abnormal returns are above those predicted by the market movement alone. Related: excess returns.

return that is notdue to systematic influences (market-wide influences). In other words, the abnormal returns is the difference between the actual return and that is expected to result from market movements (normal return). Related: excess returns.

and found that the portfolios outperformed the overall market in subsequent months. The phenomenon was observable in every one of ten overlapping periods they considered between 1964 and 1967, and it was significant enough to earn excess returns ...

excess returns The returns in excess of those required by some asset pricing model, or a market... exchange Any organization, association or group which provides or maintains a marketplace...

See also: Asset pricing model, Capital asset pricing model, Expense, Banks, Abnormal returns