PerformanceAnalytics (version 0.9.5)

CAPM.alpha: calculate CAPM alpha

Description

This is a wrapper for calculating a CAPM alpha.

"Alpha" purports to be a measure of a manager's skill by measuring the portion of the managers returns that are not attributable to "Beta", or the performance relative to a benchmark.

Usage

CAPM.alpha(Ra, Rb, rf = 0)

Arguments

Ra

a vector, matrix, data frame, timeSeries or zoo object of asset returns

Rb

return vector of the benchmark asset

rf

risk free rate, in same period as your returns

Value

• CAPM alpha

References

Sharpe, W.F. Capital Asset Prices: A theory of market equilibrium under conditions of risk. Journal of finance, vol 19, 1964, 425-442. Ruppert, David. Statistics and Finance, an Introduction. Springer. 2004.

See Also

CAPM.beta CAPM.utils

Examples

# First we load the data
data(edhec)
edhec.length = dim(edhec)[1]
start = rownames(edhec[1,])
start
end = rownames(edhec[edhec.length,])
edhec.zoo = zoo(edhec, order.by = rownames(edhec))
rf.zoo = download.RiskFree(start = start, end = end)
sp500.zoo = download.SP500PriceReturns(start = "1996-12-31", end = end)

# Now we have to align it as "monthly" data
time(edhec.zoo) = as.yearmon(time(edhec.zoo))
time(sp500.zoo) = as.yearmon(time(sp500.zoo))
time(rf.zoo) = as.yearmon(time(rf.zoo))
data.zoo = merge(edhec.zoo[,9,drop=FALSE],sp500.zoo)
time(data.zoo) = as.Date(time(data.zoo),format="%b %Y")
time(rf.zoo) = as.Date(time(rf.zoo),format="%b %Y")

CAPM.alpha(data.zoo[, 1, drop=FALSE], data.zoo[, 2, drop=FALSE], rf = rf.zoo)