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Definition of Abnormal Returns

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Definition: Used in the context of stock returns; abnormal returns means the return to a portfolio in excess of the return to a market portfolio. Contrast excess returns which means something else. Note that abnormal returns can be negative.

Example: Suppose average market return to a stock was 10% for some calendar year, meaning stocks overall were 10% higher at the end of the year than at the beginning, and suppose that stock S had risen 12% in that period. Then stock S's abnormal return was 2%.

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