Jensen Index Law and Legal Definition
Jensen index is an index that compares the performance of investment managers by allowing for portfolio risk. It uses the capital asset pricing model to determine whether a money manager outperformed a market index.
The formula for the Jensen index is as follows: Portfolio Return - [Risk-free Return + (Market Return - Risk-free Return) * Beta Measurement].
A high Jensen index suggests a high level of return given the level of risk (systematic or market) on the investment. A low Jensen index, such as a negative number, indicates inferior performance when compared to the risk. It is also called Jensen's alpha or Jensen's measure.
