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Excess returns

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Definition of Excess returns

Excess Returns Image 1

Excess returns

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



Related Terms:

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.


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.


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.


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.



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.


Excess Capacity

Unused production capacity.


Excess Returns Image 2

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 return on the market portfolio

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


Excess Supply

A situation in which supply exceeds demand.


Inventory returns

Inventory returned from a customer for any reason. This receipt
is handled differently from a standard inventory receipt, typically into an inspection
area, from which it may be returned to stock, reworked, or scrapped.


Purchase returns

A contra account that reduces purchases by the amount of items purchased that were subsequently returned.


Sales returns

A contra account that offsets revenue. It represents the amount of sales made that were later returned.



 

 

 

 

 

 

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