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In finance, Jensen's alpha [1] (or Jensen's Performance Index, ex-post alpha) is used to determine the abnormal return of a security or portfolio of securities over the theoretical expected return. It is a version of the standard alpha based on a theoretical performance instead of a market index .
In finance, the Treynor reward-to-volatility model (sometimes called the reward-to-volatility ratio or Treynor measure [1]), named after American economist Jack L. Treynor, [2] is a measurement of the returns earned in excess of that which could have been earned on an investment that has no risk that can be diversified (e.g., Treasury bills or a completely diversified portfolio), per unit of ...
A stock picking rule of thumb for assets with positive beta is to buy if the Treynor ratio will be above the SML and sell if it will be below (see figure above). Indeed, from the efficient market hypothesis, it follows that we cannot beat the market. Therefore, all assets should have a Treynor ratio less than or equal to that of the market.
For example, what does it mean if one investment has a Sharpe ratio of 0.50 and another has a Sharpe ratio of −0.50? How much worse was the second portfolio than the first? These downsides apply to all risk-adjusted return measures that are ratios (e.g., Sortino ratio, Treynor ratio, upside-potential ratio, etc.).
Michael Cole Jensen (November 30, 1939 – April 2, 2024) was an American economist who worked in the field of financial economics. From 1967-1988, he was on the University of Rochester's faculty. [ 1 ]
Jack Lawrence Treynor (February 21, 1930 – May 11, 2016) was an American economist who served as the President of Treynor Capital Management in Palos Verdes Estates, California. He was a Senior Editor and Advisory Board member of the Journal of Investment Management , and was a Senior Fellow of the Institute for Quantitative Research in Finance .
In finance the Treynor–Black model is a mathematical model for security selection published by Fischer Black and Jack Treynor in 1973. The model assumes an investor who considers that most securities are priced efficiently, but who believes they have information that can be used to predict the abnormal performance of a few of them; the model finds the optimum portfolio to hold under such ...
The function is upward sloping due to the parallel relationship between wages and the undesirable qualities of a job; the more undesirable the job is, the higher the wages employees are compensated for working at the company. The mean and variance of the function vary based on the data, whether the data is firm-level or employee-level data.