alpha quiz earned, market, 2011

Palantir

If a portfolio had an alpha of negative10 bps, then the portfolio:

A) earned 10 bps less than the market.

B) had less risk than the market.

C) earned 10 bps less than the market on a risk-adjusted basis.



Edited 1 time(s). Last edit at Tuesday, May 24, 2011 at 04:05PM by june2009.

Analti_Calte

I think the answer is A. When you look at alpha it is the additional return over the normal benchmark.

The answer would be C if you were computing Jensen's alpha, which adjusts for the risk of the portfolio for the return of the market.

Darien

C.

A would only apply if the beta of the portfolio = 1.

Zestt

A all the way

Chuckrox

C
Alpha is not an absolute return, it is a relative comparison.

mp3bu

so whats the answer and why

Iginla2011

A.



Edited 1 time(s). Last edit at Tuesday, May 24, 2011 at 04:39PM by Oal29.

Analyze_This

I always thought ALPHA was excess return over some normal benchmark w/o any risk adjustment.

My portfolio earned 10%, my properly specificied benchmark earned 8% = 2% alpha. No matter the risk I undertook to get there. Is alpha not = excess return???

Will give answer in a few.

Windjam

alpha isnt excess return its unexplained excess return

aidebaobao

In theory alpha should always be on a risk-adjusted returns basis.