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Excess return on the market portfolio

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Definition of Excess return on the market portfolio

Excess Return On The Market Portfolio Image 1

Excess return on the market portfolio

The difference between the return on the market portfolio and the
riskless rate.



Related 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.


Absolute Right of Return

Goods may be returned to the seller by the purchaser without restrictions.


Accounting rate of return (ARR)

A method of investment appraisal that measures
the profit generated as a percentage of the
investment – see return on investment.


accounting rate of return (ARR)

the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow


Active portfolio strategy

A strategy that uses available information and forecasting techniques to seek a
better performance than a portfolio that is simply diversified broadly. Related: passive portfolio strategy



After-tax real rate of return

Money after-tax rate of return minus the inflation rate.


annual return

The fund return, for any 12-month period, including changes in unit value and the reinvestment of distributions, but not taking into account sales, redemption, distribution or other optional charges or income taxes payable by any unitholder that would reduce returns.


Excess Return On The Market Portfolio Image 2

Annualized holding period return

The annual rate of return that when compounded t times, would have
given the same t-period holding return as actually occurred from period 1 to period t.


Arithmetic average (mean) rate of return

Arithmetic mean return.


Arithmetic mean return

An average of the subperiod returns, calculated by summing the subperiod returns
and dividing by he number of subperiods.


Auction markets

markets in which the prevailing price is determined through the free interaction of
prospective buyers and sellers, as on the floor of the stock exchange.


Average accounting return

The average project earnings after taxes and depreciation divided by the average
book value of the investment during its life.


Average rate of return (ARR)

The ratio of the average cash inflow to the amount invested.


Bear market

Any market in which prices are in a declining trend.


bear market

A market in which stock or bond prices are generally
falling.


Bear Market

A prolonged period of falling stock market prices.


Excess Return On The Market Portfolio Image 3

Black market

An illegal market.


book rate of return

Accounting income divided by book value.
Also called accounting rate of return.



Book Returns

Book yield is the investment income earned in a year on a portfolio of assets purchased over a number of years and at different interest rates, divided by the book value of those assets.


Brokered market

A market where an intermediary offers search services to buyers and sellers.


Bull market

Any market in which prices are in an upward trend.


bull market

A market in which stock or bond prices are generally rising.


Bull Market

A prolonged period of rising stock market prices.


Bulldog market

The foreign market in the United Kingdom.


CAPITAL IN EXCESS OF PAR VALUE

What a company collected when it sold stock for more than the par value per share.


Capital in excess par

Amounts in excess of the par value or stated value that have been paid by the public to acquire stock in the company; synonymous with additional paid-in capital.


Capital market

The market for trading long-term debt instruments (those that mature in more than one year).


Excess Return On The Market Portfolio Image 4

Capital market

The market in which investors buy and sell shares of companies, normally associated with a Stock Exchange.



Capital Market

A market that specializes in trading long-term, relatively high risk
securities


Capital Market

The market in which savings are made available to those needing funds to undertake investment projects. A financial market in which longer-term (maturity greater than one year) bonds and stocks are traded.


Capital market efficiency

Reflects the relative amount of wealth wasted in making transactions. An efficient
capital market allows the transfer of assets with little wealth loss. See: efficient market hypothesis.


Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.


Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio.


capital markets

markets for long-term financing.


CARs (cumulative abnormal returns)

a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
This is typically used in control and takeover studies, where stockholders are paid a premium for being taken over. Starting some time period before the takeover (often five days before the first announced bid, but sometimes a longer period), the researchers calculate the actual daily stock returns for the target firm and subtract out the expected market returns (usually calculated using the firm’s beta and applying it to overall market movements during the time period under observation).
The excess actual return over the capital asset pricing model-determined expected return market is called an ‘‘abnormal return.’’ The cumulation of the daily abnormal returns over the time period under observation is the CAR. The term CAR(-5, 0) means the CAR calculated from five days before the
announcement to the day of announcement. The CAR(-1, 0) is a control premium, although Mergerstat generally uses the stock price five days before announcement rather than one day before announcement as the denominator in its control premium calculation. However, the CAR for any period other than (-1, 0) is not mathematically equivalent to a control premium.


Cash markets

Also called spot markets, these are markets that involve the immediate delivery of a security
or instrument.
Related: derivative markets.


Common market

An agreement between two or more countries that permits the free movement of capital
and labor as well as goods and services.


Common stock market

The market for trading equities, not including preferred stock.


Complete capital market

A market in which there is a distinct marketable security for each and every
possible outcome.


Complete portfolio

The entire portfolio, including risky and risk-free assets.


Corner A Market

To purchase enough of the available supply of a commodity or stock in order to
manipulate its price.


Cost Plus Estimated Earnings in Excess of Billings

Revenue recognized to date under the percentage-of-completion method in excess of amounts billed. Also known as unbilled accounts
receivable.


Cumulative abnormal return (CAR)

Sum of the differences between the expected return on a stock and the
actual return that comes from the release of news to the market.


Dealer market

A market where traders specializing in particular commodities buy and sell assets for their
own accounts.


Debt market

The market for trading debt instruments.


Dedicating a portfolio

Related: cash flow matching.


Derivative markets

markets for derivative instruments.


Direct search market

Buyers and sellers seek each other directly and transact directly.


DLOM (discount for lack of marketability)

an amount or percentage deducted from an equity interest to reflect lack of marketability.


Dollar return

The return realized on a portfolio for any evaluation period, including (1) the change in market
value of the portfolio and (2) any distributions made from the portfolio during that period.


Dollar-weighted rate of return

Also called the internal rate of return, the interest rate that will make the
present value of the cash flows from all the subperiods in the evaluation period plus the terminal market value
of the portfolio equal to the initial market value of the portfolio.


Domestic market

Part of a nation's internal market representing the mechanisms for issuing and trading
securities of entities domiciled within that nation. Compare external market and foreign market.


Efficient capital market

A market in which new information is very quickly reflected accurately in share
prices.


efficient capital markets

Financial markets in which security prices rapidly reflect all relevant information about asset values.


Efficient Market Hypothesis

In general the hypothesis states that all relevant information is fully and
immediately reflected in a security's market price thereby assuming that an investor will obtain an equilibrium
rate of return. In other words, an investor should not expect to earn an abnormal return (above the market
return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis
exist: weak form (stock prices reflect all information of past prices), semi-strong form (stock prices reflect all
publicly available information) and strong form (stock prices reflect all relevant information including insider
information).


Efficient Markets Hypothesis

The hypothesis that securities are typically in equilibrium--that they are fairly priced in the sense that the price reflects all publicly available information on the security.


Efficient portfolio

A portfolio that provides the greatest expected return for a given level of risk (i.e. standard
deviation), or equivalently, the lowest risk for a given expected return.
Efficient set Graph representing a set of portfolios that maximize expected return at each level of portfolio
risk.


Either-way market

In the interbank Eurodollar deposit market, an either-way market is one in which the bid
and offered rates are identical.


Emerging markets

The financial markets of developing economies.


Equilibrium market price of risk

The slope of the capital market line (CML). Since the CML represents the
return offered to compensate for a perceived level of risk, each point on the line is a balanced market
condition, or equilibrium. The slope of the line determines the additional return needed to compensate for a
unit change in risk.


Equity market

Related:Stock market


Eurocurrency market

The money market for borrowing and lending currencies that are held in the form of
deposits in banks located outside the countries of the currencies issued as legal tender.


Ex post return

Related: Holding period return


Exante return

The expected return of a portfolio based on the expected returns of its component assets and
their weights.


Excess Capacity

Unused production capacity.


Excess Demand

A situation in which demand exceeds supply.


Excess reserves

Any excess of actual reserves above required reserves.


Excess Reserves

Reserves of commercial banks in excess of those they are legally required to hold.


Excess returns

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


Excess Supply

A situation in which supply exceeds demand.


Expected future return

The return that is expected to be earned on an asset in the future. Also called the
expected return.


Expected return

The return expected on a risky asset based on a probability distribution for the possible rates
of return. Expected return equals some risk free rate (generally the prevailing U.S. Treasury note or bond rate)
plus a risk premium (the difference between the historic market return, based upon a well diversified index
such as the S&P500 and historic U.S. Treasury bond) multiplied by the assets beta.


Expected Return

The total amount of money (return) an investor anticipates to receive from an investment.


Expected return-beta relationship

Implication of the CAPM that security risk premiums will be
proportional to beta.


Expected return on investment

The return one can expect to earn on an investment. See: capital asset
pricing model.


External market

Also referred to as the international market, the offshore market, or, more popularly, the
Euromarket, the mechanism for trading securities that (1) at issuance are offered simultaneously to investors
in a number of countries and (2) are issued outside the jurisdiction of any single country. Related: internal
market


Factor portfolio

A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of
zero on any other factors.


Fair market price

Amount at which an asset would change hands between two parties, both having
knowledge of the relevant facts. Also referred to as market price.


Fair market value

The price that an asset or service will fetch on the open market.


Fair Market Value

The highest price available, expressed in terms of cash, in an open and unrestricted market between informed, prudent parties acting at arm's length and under no compulsion to transact.


Farm Improvement and Marketing Cooperatives Loans Act

See here


Feasible portfolio

A portfolio that an investor can construct given the assets available.


Feasible set of portfolios

The collection of all feasible portfolios.


Federal funds market

The market where banks can borrow or lend reserves, allowing banks temporarily
short of their required reserves to borrow reserves from banks that have excess reserves.


Federal Open Market Committee (FOMC)

Fed committee that makes decisions about open-market operations.


Financial market

An organized institutional structure or mechanism for creating and exchanging financial assets.


financial markets

markets in which financial assets are traded.


Fixed-income market

The market for trading bonds and preferred stock.


Foreign banking market

That portion of domestic bank loans supplied to foreigners for use abroad.


Foreign bond market

That portion of the domestic bond market that represents issues floated by foreign
companies to governments.


Foreign equity market

That portion of the domestic equity market that represents issues floated by foreign companies.


Foreign Exchange Market

A worldwide market in which one country's currency is bought or sold in exchange for another country's currency.


Foreign market

Part of a nation's internal market, representing the mechanisms for issuing and trading
securities of entities domiciled outside that nation. Compare external market and domestic market.


Foreign market beta

A measure of foreign market risk that is derived from the capital asset pricing model.


Forward Exchange Market

A market in which foreign exchange can be bought or sold for delivery (and payment) at some specified future date but at a price agreed upon now.


Forward market

A market in which participants agree to trade some commodity, security, or foreign
exchange at a fixed price for future delivery.


Fourth market

Direct trading in exchange-listed securities between investors without the use of a broker.


Futures market

A market in which contracts for future delivery of a commodity or a security are bought or sold.


Geometric mean return

Also called the time weighted rate of return, a measure of the compounded rate of
growth of the initial portfolio market value during the evaluation period, assuming that all cash distributions
are reinvested in the portfolio. It is computed by taking the geometric average of the portfolio subperiod
returns.



 

 

 

 

 

 

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