For example, consider a large-cap U.S. mutual fund that has the same level of risk (i.e. beta = 1) as the S&P 500 index. If the fund generates a return of 12% in a year when the S&P 500 has only advanced 7%, the difference of 5% would be considered as excess return, or the alpha generated by the fund manager.
Critics of mutual funds and other actively-managed portfolios contend that it is next to impossible to generate excess returns on a consistent basis over the long-term, as a result of which, most fund managers underperform the benchmark index over time. This has led to the tremendous popularity of index funds and exchange-traded funds.
Investment dictionary. Academic. 2012.
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Excess returns — Also called abnormal returns, returns in excess of those required by some asset pricing model. The New York Times Financial Glossary … Financial and business terms
excess returns — Difference between an asset s return and the riskless rate. Sometimes confused with abnormal returns, returns in excess of those required by some asset pricing model. Bloomberg Financial Dictionary … Financial and business terms
Excess Kurtosis — A statistical term describing that a probability, or return distribution, has a kurtosis coefficient that is larger then the coefficient associated with a normal distribution, which is around 3. This will signal that the probability of obtaining… … Investment dictionary
excess kurtosis — Kurtosis measures the fatness of the tails of a distribution. Positive excess kurtosis means that distribution has fatter tails than a normal distribution. Fat tails means there is a higher than normal probability of big positive and negative… … Financial and business terms
Excess Portfolio Returns — The return on a portfolio over and above a risk free rate (such as the yield on US Treasury bills). ► See also Portfolio … Financial and business terms
Abnormal returns — Part 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. The New York Times Financial Glossary … Financial and business terms
abnormal returns — The component of the return that is not due 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).… … Financial and business terms
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