Jensen Alpha

Problem

Compute Jensen's alpha: mean(portfolio) - (rf + beta * (mean(market) - rf)), the excess return left unexplained by CAPM.

Return 0.0 if either list is empty.

Hint

Compare the realized mean return with the CAPM-predicted return.

case 1

in: [[0.02,0.03],[0.01,0.02],1.2,0.01]

expected: 0.009000000000000001

case 2

in: [[0.05],[0.04],1,0]

expected: 0.010000000000000002

case 3

in: [[0.1,0.1],[0.05,0.05],0,0.01]

expected: 0.09000000000000001

case 4

in: [[0],[-0.02],1.5,0]

expected: 0.03

Starter codePython

def jensen_alpha(portfolio, market, beta, rf):
    # Your code here
    pass

4 test cases · run your code against them in the editor