1-4,6-9,14,15,26

8 qs attempt 5
3 numericals
4 theories
1 MCQ
AIpha is a risk-adjusted measure of the so-called active return on an investment. t is the return in excess of the compensation for
the risk borne, and thus commonly used to assess active managers' performances. Often, the return of a benchmark is subtracted in
order to consider relative performance, which yields Jensen's alpha.
The aIpha coefficient (

is a parameter in the capital asset pricing model (CAPM. t is the intercept of the security characteristic
line (SCL, that is, the coefficient of the constant in a market model regression.

t can be shown that in an efficient market, the expected value of the alpha coefficient is zero. Therefore the alpha coefficient
indicates how an investment has performed after accounting for the risk it involved:

: the investment has earned too little for its risk (or, was too risky for the return

: the investment has earned a return adequate for the risk taken

: the investment has a return in excess of the reward for the assumed risk
For instance, although a

hat Does 5, Mean?

1. A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk of a mutual fund and compares its risk-
adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's
alpha.

2. The abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the capital
asset pricing model (CAPM.

nvestopedia expIains 5,
1. Alpha is one of five technical risk ratios; the others are beta, standard deviation, R-squared, and the Sharpe ratio. These are
all statistical measurements used in modern portfolio theory (MPT. All of these indicators are intended to help investors determine
the risk-reward profile of a mutual fund. Simply stated, alpha is often considered to represent the value that a portfolio manager
adds to or subtracts from a fund's return.

A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha
would indicate an underperformance of 1%.

2. f a CAPM analysis estimates that a portfolio should earn 10% based on the risk of the portfolio but the portfolio actually earns
15%, the portfolio's alpha would be 5%. This 5% is the excess return over what was predicted in the CAPM model.


Read more: http://www.investopedia.com/terms/a/alpha.asp#ixzz1VS6l6fYs