Question

is jensens alpha calculated on the slope or intercept

Answer 1

jensens alpha is calculated on slope.

interpretation:

Jensen's alpha (invented my Michael Jensen in the 1970s):

1). We collect the returns for some stock (or mutual fund) over the past n months (weeks or years)

2). We do the same for some market index.

3). Then, using these returns, we generate a scatter plot and identify the slope of the "best line" fit: that's called beta.

4).Then we calculate the CAPM according to the magic formula:

CAPM Return = R_f + beta (R_mkt - R_f)

where ,R_f = risk-free return and R_mkt = (average or "expected") market return.

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