3.1c Average Return

Average Return

Average return is a measure of the central tendency of returns over a period of time, representing the typical or mean performance of an investment or asset. For returns $R_t,R_{t+1},\dots ,R_{t+n}$, the arithmetic average return is given as
${\bar{R}}_{\text{A}}=\frac{1}{n}{\sum }_{i=0}^n{R}_{t+i},$
whereas the geometric average return is given as
${\bar{R}}_{\text{G}}={\left(1+{\prod }_{i=1}^n{R}_{t+i}\right)}^{\frac{1}{n}}.$