Quiz: Jensen's Alpha would, which, return

Muddahudda

If the AM Growth Fund is considered to be well-diversified, which measure would be more appropriate in evaluating its risk/return performance?
A) The Treynor measure.

B) The Sharpe ratio.

C) Jensen's Alpha measure.

Darien

Me 2.

Why C is wrong?

aidebaobao

Sharpe Ratio and Jensen's Alpha considers Total Risk(Systematic Risk and + Unsystematic Risk).
AM considers only systematic risk(Well-Diversified), Treynor Measure is appropriate.

liangfeng

overdope Wrote:
-------------------------------------------------------
> Sharpe Ratio and Jensen's Alpha considers Total
> Risk(Systematic Risk and + Unsystematic Risk).
> AM considers only systematic
> risk(Well-Diversified), Treynor Measure is
> appropriate.


Jensen's alpha measures excess return given systematic risk, beta, of the portfolio but Treynor measures unit excess return per systematic risk taken. Jensen's provides the total alpha (excess return) generated.

Unforseen

overdope Wrote:
-------------------------------------------------------
> Sharpe Ratio and Jensen's Alpha considers Total
> Risk(Systematic Risk and + Unsystematic Risk).
> AM considers only systematic
> risk(Well-Diversified), Treynor Measure is
> appropriate.


I tot Jensen's is the same as Treynor, which only takes Beta, systematic risk?

justin88

Agree with Tega

bodhisattva

ole give away the punchline before the joke

jmh530

If the portfolio is well diversified, Then
Total risk should be approximately equal to systematic risk.
I assume all three should be the same.

lcw77

hellscream Wrote:
-------------------------------------------------------
> Xtra Wrote:
> --------------------------------------------------
> -----
> > Lol... Why is this quiz called Jensen's alpha
> >
> >
> > A
>
>
> Because choosing A is easy, but why C is wrong?

I had that same question and thought the same thing. Schweser gave a great reason that it was Treynor was risk adjusted.

I guess subtracting out Beta(MKT - RFR) provides more information than dividing by beta on risk.

The more you read the CFA curriculum the more you realize Schweser has not been updated in a long time and their interpretations are just that interpretations of the problems.

mp3bu

If it is well diversified then no difference between A or B, and even C should be close.

SO all three are the same