The term ‘abnormal rate of return’ refers to the deviation from the expected rate of return on a security/portfolio. It can be calculated by defining the difference between the actual rate of return for a stock and the expected rate of return. The resulting value may change over time, as one period may reflect the positive value, while another will reveal the negative trend.
The generated return may be below or above the established benchmark or predicted normal value, which provides data on the performance of a security/portfolio. The research in behavioral finance suggests that abnormal rates of return can be caused by investor biases and overconfidence in future growth.