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For much of his career, Tadas Viskanta has taken the traditional path in finance. He was even the founder of a hedge fund. Then in 2005, he made a big change -- starting an investment blog. It was ...
In finance, an abnormal return is the difference between the actual return of a security and the expected return.Abnormal returns are sometimes triggered by "events." Events can include mergers, dividend announcements, company earning announcements, interest rate increases, lawsuits, etc. all of which can contribute to an abnormal return.
Similarly, firms that report bad news in earnings tend to have their abnormal security returns drift downwards for a similar period. This phenomenon is called post-announcement drift. This was initially proposed by the information content study of Ray J. Ball & P. Brown, 'An empirical evaluation of accounting income numbers', Journal of ...
Thereafter, the method deducts this 'normal returns' from the 'actual returns' to receive 'abnormal returns' attributed to the event. Event studies, however, may differ with respect to their specification of normal returns. The most common model for normal returns is the 'market model' (MacKinlay 1997).
In finance, Jensen's alpha [1] (or Jensen's Performance Index, ex-post alpha) is used to determine the abnormal return of a security or portfolio of securities over the theoretical expected return. It is a version of the standard alpha based on a theoretical performance instead of a market index .
r it is return to stock i in period t r f is the risk free rate (i.e. the interest rate on treasury bills) r mt is the return to the market portfolio in period t is the stock's alpha, or abnormal return is the stock's beta, or responsiveness to the market return
An 836-pound “cursed” emerald worth nearly $1 billion will be returned to Brazil after 15 years under lock and key in Los Angeles. The 180,000-carat Bahia Emerald was smuggled out of the South ...
Therefore, anomalous market returns may reflect market inefficiency, an inaccurate asset pricing model or both. This problem is discussed in Fama's (1970) influential review [ 1 ] of the theory and evidence on efficient markets, and was often used to argue against interpreting early stock market anomalies as mispricing.