What is abnormal return?

Abnormal return refers to the return of a security or securities portfolio that deviates from the market average, such as an index or other benchmark. This can be a negative deviation ('underperformance') as well as a positive one ('outperformance').

Abnormal returns are often associated with specific events or market developments, such as news about a merger, acquisition, or legal procedures that directly influence a certain security.

The concept is essential in financial analysis to understand the impact of such events on the return.