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Jensen Alpha | Jensens Alpha | Ratio | Definition | What is Jensen's Ratio?

Jensen Alpha

Jensen Alpha | Definition

The average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. Developed by Michael C. Jensen, this measure of a portfolio's alpha value is the most widely used measure of the risk to return trade-off. Also known as is the abnormal return or the risk adjusted excess return.

In Russell Style Classification (RSC), the Jensen alpha is calculated as follows:

Formula for Jensen Alpha

Where

Equals

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Jensen alpha

_
r
p

Average return of the portfolio

_
r
f

Average return of the risk-free proxy

_
r
m

Average return of the benchmark proxy

image\ebx_725430706.gif p

Beta of the portfolio


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Link to This Resource: Jensen Alpha | Jensens Alpha | Ratio | Definition | What is Jensen's Ratio?

http://richard-wilson.blogspot.com/2005/10/jensen-alpha-jensens-alpha-ratio.html

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