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Many CIOs use Jensen's Alpha to help with their decisions on the selection of portfolio...

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Accounting

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Many CIOs use Jensen's Alpha to help with their decisions on the selection of portfolio managers. i) Explain Jensen's Alpha as a selection tool for portfolio managers. What does a higher Jensen's alpha tell us about a portfolio manager's performance? ii) Take Portfolio ABC. Daily return based on CAPM is 0.20% and the actual portfolio return is 0.15%. Calculate its Jensen Alpha. Is this a good indicator? Can we consider this portfolio and if so, why? (4 marks)

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