Geometric Mean represents the average, or the mean, of a set of values. It is estimated by taking the product of the values we are calculating a geometric mean for.
The uncertainty in cash flows creates a divergence between arithmetic and geometric returns. If there is no variance, arithmetic and geometric returns coincide. In real-world conditions we do have variance so arithmetic returns will be higher than geometric returns, thus representing a more favorable viewpoint.
Other related topics you might be interested to explore are Arithmetic Mean, and Measures of Central Tendency.
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Geometric Mean is among the topics included in the Quantitative Methods module of the CFA Level 1 Curriculum.
