Jensen's Index

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Jensen's Index

A measure of the return on a portfolio over what the capital asset pricing model predicts, given the beta and market return on that portfolio. The index also adjusts for risk. It is also called Jensen's alpha or Jensen's measure. It is calculated as:

Jensen's Index = ((Portfolio's return - Risk-free return) + (Market return - Risk-free return)) * Beta
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Both a Jensen's alpha and a conditional alpha are calculated for each portfolio.
The Capital Asset Pricing Model (CAPM) and the Jensen's alpha fall out of equation (1) if the conditioning information variables, Z, are zero:
Jensen's alpha evaluates fund performance quite differently than a Sharpe ratio.
For calculation of Jensen's alpha, each fund category is matched with a passive index benchmark from the set of Morgan Stanley Capital International Indices.
Redman, Gullett and Manakyan (2000) examined the risk-adjusted returns using Sharpe's Index, Treynor's Index, and Jensen's Alpha for five portfolios of international mutual funds and for three time periods: 1985-1994, 1985-1989, and 1990-1994.
Jensen's Alpha measure is given by the Equation-7 as shown below.
Jensen's Alpha is the difference between the actual return from a portfolio and that of Equilibrium Average Return ([EAR.
SBI Magnum Multiplier Plus Scheme showed positive Jensen's Alpha in many years covered under the study.
Earlier studies of fund performance evaluation are started with the models based on Jensen's alpha (i.
In order to compare the fund strategies performance with the behavior of a market benchmark (Table 8), we make the correlation between three measures of Sharpe, Treynor, and Jensen's alpha with each of the three efficiencies computed by the DEA involving technical, management, and scale efficiency.
Point estimates of Jensen's alpha provide some evidence of superior returns, although none of the individual point estimates is statistically significant at the 5% level.
To arrive at Jensen's alpha coefficient, the basic CAPM expression, assuming it is empirically valid, is extended by deducting both sides of the equation by the risk-free rate of return.