What Are Abnormal Returns?

The abnormal return is the difference between the actual return and the normal return of a security. Events such as mergers and acquisitions, dividend announcements, and company lawsuits may bring abnormal returns. Most empirical evidence supports the argument that the common stock market is weakly effective. The evidence comes from statistical tests that examine whether historical price changes can be used to predict future prices in order to obtain higher returns than can be expected from market changes and securities risk levels. These returns are called " "Positive" abnormal returns. ^[1]

Abnormal return

Right!

The abnormal return is the difference between the actual return and the normal return of a security. Events such as mergers and acquisitions, dividend announcements, and company lawsuits may bring abnormal returns. Most empirical evidence supports the argument that the common stock market is weakly effective. The evidence comes from statistical tests that examine whether historical price changes can be used to predict future prices in order to obtain higher returns than can be expected from market changes and securities risk levels. These returns are called " "Positive" abnormal returns. ^[1]

The calculation of abnormal returns is as follows:

1 Wang Siguo, Li Huaizu.Analysis of abnormal return changes in the process of distribution of circulating stocks [J] .Economic Theory and Economic Management, No.11, 2002. ^[2]