Abnormal Return in the context of cryptocurrency investments refers to the deviation of an investment’s return from its expected or normal rate of return. This deviation results in returns that are significantly higher or lower than what would typically be anticipated given the investment’s risk profile and market conditions. Abnormal returns can be temporary and may arise due to unusual market fundamentals, irregularities in the cryptocurrency market, or potentially fraudulent activities by entities involved in the investment.
Abnormal return is distinct from Alpha or excess returns, which are typically associated with the skill or performance of investment managers. In contrast, Cumulative Abnormal Returns (CAR) aggregate all abnormal returns over a period to assess the impact of external events or anomalies on cryptocurrency prices. The concept of abnormal return is crucial in the analysis of cryptocurrency investments as it helps investors and analysts to identify and understand significant performance deviations that are not in line with general market movements or the expected behavior of the investment.