Economics Risk And Return Questions
Jensen's alpha is a measure used in finance to assess the risk-adjusted performance of an investment or portfolio. It is calculated by comparing the actual return of the investment or portfolio to the expected return based on its level of systematic risk, as measured by the capital asset pricing model (CAPM). Jensen's alpha indicates whether the investment or portfolio has outperformed or underperformed the market, after adjusting for the level of risk taken. A positive alpha suggests that the investment or portfolio has generated excess returns, while a negative alpha indicates underperformance.