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
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If possible, also ask for pooled funds' Jensen index, which measures the return that the funds are generating in excess of what they should be generating taking into consideration the funds' volatility relative to a benchmark index.
Jensen index: The Jensen index considers the following equation assuming that CAPM is valid.
In view of the fact that index rankings were highly correlated, to attain consistency with the first phase of the analysis, the Jensen index was chosen to compare the performances of funds within the years.