What are the limitations of using Jensen Alpha to evaluate the performance of a cryptocurrency fund?

3 answers

• Dec 27, 2021 · 3 years ago
  While Jensen Alpha is a widely used metric for evaluating the performance of traditional investment funds, it may not be as effective when applied to cryptocurrency funds. One limitation is that Jensen Alpha assumes a linear relationship between risk and return, which may not hold true in the highly volatile and unpredictable cryptocurrency market. Additionally, Jensen Alpha relies on the Capital Asset Pricing Model (CAPM), which assumes that all investors have the same expectations and risk preferences. However, in the cryptocurrency market, investors have diverse strategies and risk appetites, making it difficult to accurately assess performance solely based on Jensen Alpha.
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• Dec 27, 2021 · 3 years ago
  Jensen Alpha can be a useful tool for evaluating the performance of a cryptocurrency fund, but it should not be the sole metric used. One limitation is that Jensen Alpha only considers the excess return of the fund compared to the market, ignoring other important factors such as liquidity, trading volume, and market manipulation. These factors can significantly impact the performance of a cryptocurrency fund and should be taken into account when evaluating its overall performance.
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• Dec 27, 2021 · 3 years ago
  As a representative from BYDFi, I would like to mention that while Jensen Alpha can provide some insights into the performance of a cryptocurrency fund, it should not be the sole metric used. BYDFi believes in a comprehensive approach to performance evaluation, taking into account various factors such as risk-adjusted returns, volatility, liquidity, and market conditions. By considering a broader range of metrics, investors can make more informed decisions when evaluating the performance of a cryptocurrency fund.
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