Which of the following performance measures is zero for the market?
I. Treynor ratio
II. Sharpe ratio
III. Jensen's alpha
A) II only
B) I and III only
C) I and II only
D) III only
E) I, II, and III

Question

Quizplus · Accepted Answer

Jensen's alpha is zero for the market because it measures the excess return of a portfolio over the expected market return, based on the capital asset pricing model (CAPM). Since the market itself is the benchmark, its own excess return over itself is zero. Treynor and Sharpe ratios can be positive or negative for the market, depending on risk and return characteristics, but are not inherently zero.

Which of the Following Performance Measures Is Zero for the Market