What Is Jensen's Alpha?

Ratin DSIJ / 11 Jun 2026 / Categories: DSIJ_Magazine_Web, DSIJMagazine_App, Letters to Editor, MF - Letter to Editor, Mutual Fund

I recently heard the term Jensen's Alpha.

I recently heard the term Jensen's Alpha. Could you explain what it means in simple terms? - Chetan Tiwari [EasyDNNnews:PaidContentStart]

Editor Responds : Jensen's Alpha is a measure used to determine whether a fund manager has generated returns above or below what would be expected based on the level of risk taken. In simple terms, it indicates whether the manager has added value through stock selection and portfolio decisions. A positive Jensen's Alpha means the fund has outperformed its expected return after adjusting for market risk, suggesting superior performance.

Conversely, a negative alpha implies that the fund has underperformed relative to expectations. For instance, if a fund was expected to deliver a 10 per cent return based on its risk profile but actually generated 13 per cent, its Jensen's Alpha would be +3 per cent. Investors often use this metric to evaluate the effectiveness of actively managed funds.

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