Excess returns

Excess returns

Difference between an asset's return and the riskless rate. Sometimes confused with abnormal returns, returns in excess of those required by some asset pricing model.

Excess Return

A return that is larger than some benchmark, especially the risk-free return. A portfolio, for example, may have an excess return above the index on which it is based. This occurs when the portfolio manager makes certain investment decisions that pay off for the investor. It is important to note that receiving an excess return almost always requires one to take on more risk.