Foundations of Risk Management

parmit68
Posts: 4
Joined: Fri May 04, 2012 11:00 am

Foundations of Risk Management

Postby parmit68 » Wed May 16, 2012 1:15 pm

A portfolio underperformed its benchmark by 2%.what can we say about alpha ?
a. alpha is -2%
b.alpha is definitely negative
c.alpha can be positive or negative.


I need some assistance in understanding the concept.

Ans.c

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suresh.wadhwani2009
Finance Junkie
Posts: 99
Joined: Sat Apr 07, 2012 10:24 am

Re: Foundations of Risk Management

Postby suresh.wadhwani2009 » Wed May 16, 2012 2:36 pm

Dear Parmit,

same qn is already answered in one of the discussion.

Jensen alpha=actual return-return calculated by CAPM

As u know in CAPM there are factors like Rf and Beta. so alpha depends on these factors. thats why it can be positive or negative.

Hope it helps!


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