Ch.10 · Risk Measures and Ratios · hard
What is the Jensen's Alpha and what does it measure?
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EXPLANATION
Jensen's Alpha measures the actual fund return minus the expected return based on the Capital Asset Pricing Model (CAPM). CAPM expected return = Risk-free rate + Beta × (Market return - Risk-free rate). Positive Jensen's Alpha means the manager added value beyond what was expected for the systematic risk taken.
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