Sunday, May 5, 2024

What is Alpha?

Alpha is an excess portfolio return, introduced by Michael C Jensen in his doctoral dissertation (1968) and subsequent JOF article (1968).

Sharpe ratio, Jensen Alpha and Treynor ratio are three leading, fundamental benchmarks to measure portfolio returns.
May be an image of text that says 'Jensen's Alpha Jensen's Alpha is based on systematic risk. The daily returns of the portfolio are regressed against the daily returns of the market in order to compute α measure of this systematic risk in the same manner as the CAPM. The difference between the actual return of the portfolio the calculated or modeled risk-adjusted return is α measure of performance relative to the and market. Qp=p-(區+8(.m-) (..-R)) (Rm- R)) ap (R+Bp'
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