Jensen index

Jensen index

An index that uses the capital asset pricing model to determine whether a money manager outperformed a market index. The alpha of an investment or investment manager.

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
Mentioned in ?