Expected Return

(redirected from Expected Future Returns)
Also found in: Wikipedia.

Expected return

The expected return on a risky asset, given a probability distribution for the possible rates of return. Expected return equals some risk-free rate (generally the prevailing U.S. Treasury note or bond rate) plus a risk premium (the difference between the historic market return, based upon a well diversified index such as the S&P 500 and the historic U.S. Treasury bond) multiplied by the asset's beta. The conditional expected return varies through time as a function of current market information.

Expected Return

The return on an investment as estimated by an asset pricing model. It is calculated by taking the average of the probability distribution of all possible returns. For example, a model might state that an investment has a 10% chance of a 100% return and a 90% chance of a 50% return. The expected return is calculated as:

Expected Return = 0.1(1) + 0.9(0.5) = 0.55 = 55%.

It is important to note that there is no guarantee that the expected rate of return and the actual return will be the same. See also: Abnormal return.

Expected Return

The expected return is used to figure the taxable portion of pension that is taxed under the general rule. For a lifetime pension, it is computed by multiplying the annual pension by the applicable expected life multiple from government actuarial tables.
References in periodicals archive ?
If an asset has characteristics that investors really dislike, such as low liquidity, little name recognition, or high volatility, its price will be lower and therefore its expected future returns will be higher, all other things being equal.
Today, expensive bond markets combined with increasingly "dear" equity valuations create a similar -- yet in some ways starker backdrop as expected future returns on stocks and bonds fall in step.
The positive relationship between current stock prices and expected future returns is consistent across a variety of surveys and alternative model specifications.
In particular, the author shows that unexpected volatility is negatively related to expected future returns.
For the UAE in particular, having an investment strategy that leads to expected future returns seems to be a greater priority than for the rest of the world.
Our remaining equity investment in the joint venture is approximately USD24m, and we are excited about the expected future returns to Chatham shareholders from this remaining investment.
Since firms go bankrupt typically due to inability to pay debt, the major factor in determining whether a firm will go bankrupt is the availability of cash, while expected future returns should not have a significant effect on the probability of bankruptcy.
Companies that have defined benefit plans--that is, a plan that provides a specified benefit to a participant upon retirement--require the use of estimates, most notably in the areas of expected future returns on plan assets and expected inflation rates.
In an earlier Economic Commentary, we illustrated in some detail how declining shareholder costs affect stock prices and expected future returns.
Slightly more than half of the cross-sectional variation in excess values is attributable to variation in expected future cash flows, with the remainder attributable to variation in expected future returns and to co-variation between cash flows and returns.
Discount rates can be based on market data or expected future returns.
These findings report that stocks with high past volatility have low expected future returns.

Full browser ?