A Bias in Jensen’s Alpha When Returns Are Serially Correlated

Jangkoo Kang, Soonhee Lee

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College of Business, Korea Advanced Institute of Science and Technology, Seoul, South Korea.

DOI: 10.4236/tel.[phone]                

Abstract

This paper shows that Jensen’s alpha may be a biased performance measure even for public-information-based portfolios, unless the benchmark portfolio return has no serial correlation, and the bias can be substantial even when the underlying asset pricing model holds.

Keywords

Performance Measurement; Jensen’s Alpha; Time-Varying Risk

Conflicts of Interest

The authors declare no conflicts of interest.

References

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