Price Return measures the change in the price of an investment or index over a specific period, excluding dividends or other income.
Price Return refers to the percentage change in the market price of a security, portfolio, or index over a given time frame, without accounting for any income generated such as dividends or interest. It captures purely the capital appreciation or depreciation component of the investment’s performance. This metric is fundamental to understanding how market prices move but does not reflect the total gains earned by an investor who also benefits from income distributions. In finance, price return is often used as a basic performance indicator, focusing solely on changes in the underlying market value.
Understanding price return is critical for investment strategy and performance analysis, especially when comparing securities or indices that may have different dividend yields. It serves as a baseline measure of capital gains and helps family offices and wealth managers isolate price movement effects from overall returns. Since it excludes dividends, relying solely on price return may understate the true return on income-generating assets, which can influence tax planning and reporting. Monitoring price return can also guide decisions on portfolio rebalancing or shifts in asset allocation by reflecting market sentiment and valuation trends without income noise.
Suppose an investor buys shares of a stock at $100 per share. After one year, the stock’s price increases to $110. The price return is calculated as (110 - 100) / 100 = 10%. Note that if the stock paid dividends during the year, these are excluded from this calculation.
Total Return
Total Return includes both price return and any income such as dividends or interest paid, representing the complete return an investor receives from an investment.
Does Price Return include dividends?
No. Price Return only reflects the change in the price of the asset and does not include dividends or other income distributions.
How is Price Return different from Total Return?
Price Return measures only capital appreciation or depreciation, while Total Return accounts for both price changes and income like dividends or interest.
Why should I consider Price Return if it excludes income?
Price Return helps isolate the effect of market price changes alone, which is useful for understanding pure capital gains and comparing performance excluding income.
