Historical Return Definition and Quiz

1. Define - Define historical return for investment modeling.
2. Context - Use historical return in a sentence.
3. Quiz - Test yourself.

by Paul Alan Davis, CFA

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The Historical Return Timeframe for Investments

Intermediate

Historical Return is the rate of return on an asset, like a stock, bond or fund, over a period of time that occurred in the past. There are several ways to calculate return, the non-compounding version called arithmetic, and the compounding version called geometric, but the key here is to make the destinction between past (historical), present (expected) and future (forecast) for security valuation.

Synonym: realized return

For context, in the investment realm, time-series analysis of returns is a key component in the evaluation of risk and return of assets. While the term historical return is easier to understand and evaluate than the present and future, it it still wise to ascertain whether the user wants to review the compounded return using geometric return, or the simple average using arithmetic return. A third return calculation called log return is for continuously compounding returns, but is mostly used for short timeframes like days or minutes.

In a Sentence

Liz:  It is now company policy to use the terms: historical return, expected and forecast.
Kim:  Finally! Terms in Finance duplicate like stagflation.

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Quiz

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Questions or Comments?

Still unclear on Historical Returns? Check out the financial modeling series called Quant 101 where we walk through all of these calculations in Excel.

Related Terms

Our trained humans found other terms in the categories return math and timeframes you may find helpful.

• Expected Return
• Forecast Return
• Arithmetic Return
• Geometric Return
• Log Return

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