Alpha (Jensen's alpha) in mutual funds

Tue, 12 May 2026 00:00:00 +0000

Jensen’s alpha (commonly called simply “alpha” in mutual fund analysis) is a risk-adjusted performance measure that quantifies how much excess return a fund manager has delivered above the return that would be expected given the fund’s systematic risk exposure, as predicted by the Capital Asset Pricing Model (CAPM). A positive alpha indicates outperformance attributable to the manager; a negative alpha indicates underperformance after accounting for market risk.

The concept was introduced by Michael C. Jensen in his 1968 paper “The Performance of Mutual Funds in the Period 1945 to 1964” published in the Journal of Finance, making it one of the oldest formal measures of active management skill.

Jensen's Alpha on WebNotes

Alpha (Jensen's alpha) in mutual funds