What is meant by the term abnormal rate of return?

An abnormal rate of return refers to the difference between the actual return of an investment and its expected return, often benchmarked against a market index or the investment's historical performance. It indicates whether an investment has outperformed or underperformed relative to what was anticipated based on its risk level. Positive abnormal returns suggest superior performance, while negative abnormal returns indicate underperformance. This concept is commonly used in finance to assess the effectiveness of investment strategies or the impact of specific events on asset prices.