Asked by: Montaña Hensele
asked in category: General Last Updated: 14th January, 2020

What is an excess return?

Excess returns are the return earned by a stock (or portfolio of stocks) and the risk free rate, which is usually estimated using the most recent short-term government treasury bill. For example, if a stock earns 15% in a year when the U.S. treasury bill earned 3%, the excess returns on the stock were 15%-3% = 12%.

Click to see full answer.

Considering this, what is Excess Return Index?

Usually the term “excess return” refers to the total return of an index with some benchmark subtracted from it. A common benchmark is the return on cash (T bills) over that time period.

Additionally, is Alpha the same as excess return? Alpha is excess return calculated on a risk-adjusted basis. The job of an active fund manager is to provide excess returns on a risk-adjusted basis, NOT just excess return.

Subsequently, one may also ask, how do you calculate excess return?

Excess return is identified by subtracting the return of one investment from the total return percentage achieved in another investment. When calculating excess return, multiple return measures can be used. Some investors may wish to see excess return as the difference in their investment over a risk-free rate.

Is risk premium the same as excess return?

Many experts claim that there is no reason why some type of premium should be associated with all types of risk. In other words, a risk premium is the expected excess return on an investment, where the excess return is the difference between the return of a risk-free security and an actual return.

38 Related Question Answers Found

What is considered high tracking error?

What is the risk free return?

What are raw returns?

What is absolute tracking error?

What is an index return?

How do you interpret tracking errors?

Can expected return negative?

How do you calculate Active return?

What is risk premium formula?

What is expected return on stock?

What is the CAPM formula?

What is tracking error of a portfolio?

What is a Sharpe Ratio example?