Excess return
A return minus what the market did over the same period. It shows what a strategy added beyond just being invested.
In plain English
If a stock rose 5% while the average stock rose 4%, its excess return was 1 percentage point. Measuring this way stops a rising market from getting mistaken for skill.
Uncle Gary explains
Kevin got a pay rise of 3% and is very proud. Prices rose 4% the same year. His excess return was minus 1 point, which nobody has had the heart to tell him.
Why it matters for your money
We measure every result this way or against a control group. Most strategies that look profitable on their own add nothing once the market's move is taken out.
Where we tested it
- Does Volume Confirm the Trend? Sometimes It Contradicts It
- Should You Buy Stocks After Good Earnings? Post-Earnings Drift, Tested
Related terms
All glossary terms. Educational content, not financial advice.