Alpha
Definition
The return on an investment in excess of what a benchmark (or a model like CAPM) predicts. Positive alpha = skill; negative alpha = underperformance after risk.
Example
A fund that returns 12% when CAPM predicts 9% has 3% alpha.
The return on an investment in excess of what a benchmark (or a model like CAPM) predicts. Positive alpha = skill; negative alpha = underperformance after risk.
A fund that returns 12% when CAPM predicts 9% has 3% alpha.