Question

Assuming in a single problem, what would be the statistical interpretations of the followings: a) expected return:(-0.0005458), b) Abnormal returns (-0.00055164), c) Cumulative abnormal return (0.03030591), d) Abnormal return_t-test( -0.8220368)?

Answer 1

a] Expected return: An expected return is the income or loss from an investment that an investor expects to received based on an assumed rate of return. If return is positive then assume to be a profit or income and if return is negative then it is assume to be loss.

here -0.0005458 expected return means we getting loss of ammount 5458 per 10000000 OR 0.05458% loss.

b] Abnormal returns: It is Also known as excess return, is a difference of Actual returns and normal returns. An investment's abnormal return, positive or negative, measures how it performed over a given period of time. In this respect, it is useful to investors as a valuation tool and for comparing returns to market performance.

c] Cumulative abnormal return (CAR): Is the Sum of the differences between the expected return and the actual return (is the sum of the abnormal returns). It is helpful for determining how accurate the asset pricing model is in calculating the expected return.

d] Abnormal return_t-test: We used this test for to test the null hypothesis that the mean of CAR is equal to zero. it is test statistic value where s is standard deviation and is actual return