Jensen's Measure

A risk-adjusted performance measure that represents the average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. This is the portfolio's alpha. In fact, the concept is sometimes referred to as "Jensen's alpha."

Jensen's Measure

If the definition above makes your head spin, don't worry: you aren't alone! This is a very technical term that has its roots in financial theory.

The basic idea is that to analyze the performance of an investment manager you must look not only at the overall return of a portfolio, but also at the risk of that portfolio. For example, if there are two mutual funds that both have a 12% return, a rational investor will want the fund that is less risky. Jensen's measure is one of the ways to help determine if a portfolio is earning the proper return for its level of risk. If the value is positive, then the portfolio is earning excess returns. In other words, a positive value for Jensen's alpha means a fund manager has "beat the market" with his or her stock picking skills.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Jensen's inequality — In mathematics, Jensen s inequality, named after the Danish mathematician Johan Jensen, relates the value of a convex function of an integral to the integral of the convex function. It was proved by Jensen in 1906 [Jensen, J. Sur les fonctions… …   Wikipedia

  • Jensen's alpha — In finance, Jensen s alpha (or Jensen s Performance Index, ex post alpha) is used to determine the excess return of a security or portfolio of securities over the security s theoretical expected return. The security could be any asset, such as… …   Wikipedia

  • Jensen Box — The Jensen Box was developed by UC Berkeley psychologist Arthur Jensen as a standard apparatus for measuring choice reaction time, especially in relationship to differences in intelligence [A. R. Jensen. (1987). Individual differences in the Hick …   Wikipedia

  • Arthur Jensen — (born August 24 1923) is a Professor Emeritus of educational psychology at the University of California, Berkeley. [http://www.edb.utexas.edu/robinson/danr/JEBS%2031(3)%20 06 Jensen%20profile.pdf] Jensen is known for his work in psychometrics and …   Wikipedia

  • Mahler measure — In mathematics, the Mahler measure M(p) of a polynomial p is Here p is assumed complex valued and is the Lτ norm of p (although this is not a true norm for values of τ < 1). It can be shown that if …   Wikipedia

  • Dwight Jensen — was the 1978 Democratic nominee for United States Senate in Idaho.[1] He was defeated by the Republican incumbent, Jim McClure.[2] References ^ …   Wikipedia

  • Jim Jensen (Nebraska) — Jim Jensen (born 1934) was a Nebraska state senator from Omaha, Nebraska in the Nebraska Legislature and contractor. NOTOC Personal lifeHe was born on Jan. 17, 1934, in Omaha, Nebraska and graduated from a Technical High School in Omaha and Omaha …   Wikipedia

  • risk-adjusted return on capital — Fin return on capital calculated in a way that takes into account the risks associated with income. EXAMPLE Being able to compare a high risk, potentially high return investment with a low risk, lower return investment helps answer a key question …   The ultimate business dictionary

  • alpha — Measure of risk adjusted performance. An alpha is usually generated by regressing the security or mutual fund s excess return ( excess returns) on the S&P 500 excess return. The beta adjusts for the risk (the slope coefficient). The alpha is the… …   Financial and business terms

  • Race and intelligence — Human intelligence Abilities and Traits …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.