Excess return describes the additional profit, which an investment has achieved in comparison to the return on a risk-free investment in the same time period.
In addition, the excess return shows whether undertaking the high-risk investment was worthwhile. As a rule, an excess return is accompanied by higher risk.
In order to calculate the excess return, the risk-free market interest rate is subtracted from the return achieved by an investment. For example, the excess return is 2 percent, if the risk-free achievable return is 4 percent and the high-risk investment has generated a return of 6 percent.