PerformanceAnalytics (version 1.1.0)

CAPM.jensenAlpha: Jensen's alpha of the return distribution

Description

The Jensen's alpha is the intercept of the regression equation in the Capital Asset Pricing Model and is in effect the exess return adjusted for systematic risk.

Usage

CAPM.jensenAlpha(Ra, Rb, Rf = 0, ...)

Arguments

Ra

an xts, vector, matrix, data frame, timeSeries or zoo object of asset returns

Rb

return vector of the benchmark asset

Rf

risk free rate, in same period as your returns

...

any other passthru parameters

Details

$$\alpha = r_p - r_f - \beta_p * (b - r_f)$$

where $r_f$ is the risk free rate, $\beta_r$ is the regression beta, $r_p$ is the portfolio return and b is the benchmark return

References

Carl Bacon, Practical portfolio performance measurement and attribution, second edition 2008 p.72

Examples

data(portfolio_bacon)
print(CAPM.jensenAlpha(portfolio_bacon[,1], portfolio_bacon[,2])) #expected -0.014

data(managers)
print(CAPM.jensenAlpha(managers['1996',1], managers['1996',8]))
print(CAPM.jensenAlpha(managers['1996',1:5], managers['1996',8]))