Excess Returns

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Definition

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%.

Formula

Return on Asset - Risk Free Rate

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