Term
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Definition
| A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. This ratio is calculated by subtracting the risk-free rate - such as that of the 10-year U.S. Treasury bond - from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. |
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Term
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Definition
| A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless investment per each unit of market risk. Uses the beta coefficient in the denominator. |
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Term
| Jensen approach or Alpha model (p.572) |
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Definition
| A risk-adjusted performance measure that represents the average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. This is the portfolio's alpha.Compares the actual excess returns (total portfolio returns - Risk-free rate) with what should be required in the market, based on their portfolio beta. |
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Term
| Alpha or average differential return (p.573) |
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Definition
| The abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the capital asset pricing model (CAPM). |
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Term
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Definition
| Type of fund in which fund managers merely attempt to produce the same results as those that could be attained from investing in a market index, such as the S&P 500 Stock Index. |
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Term
| R^2 Coefficient of Determination (p.576) |
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Definition
| The degree of association between the independent and dependent variables. |
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Term
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Definition
| The designation of funds into various categories of assets. |
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Term
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Definition
| The total return on a portfolio (capital appreciation plus dividends) minus the risk-free rate. |
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Term
| Institutional investors (p.588) |
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Definition
| Type of investor that represents organizations that are responsible for bringing together large pools of capital for reinvestment. |
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Term
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Definition
| Represents the required rate of excess returns in the market for a given beta. |
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