Consider 2 stocks A and B. Over a period of time, the Jensen's alpha for stock A was 0.5 and the Jensen's alpha for stock B was -0.7. Over the same period of time, it was found that the beta (from the Jensen's alpha regression equation) for stock A was 1.2 and for stock B was 1.5.


Considering that the return on the index which was used in calculating Jensen's alpha and beta for these stocks over this time period was exactly the same as the risk-free rate, which stock had better returns over this period of time? (Consider that the error terms from the regression output of the Jensen's alpha equation are all zero)

Answer rating: 100% (QA)

Jensens alpha is a measure of a stocks riskadjusted performance relative to its expected return base... View the full answer