Aswath Damodaran 112
A positive Jensen’s alpha... Who is responsible?
! Disney has a positive Jensen’s alpha of 0. 60 % a year between 1999 and 2003.
This can be viewed as a sign that management in the firm did a good job,
managing the firm during the period.
a) True
b) False
This is not necessarily true. In fact, the average Jensen’s alpha across
entertainment companies during this period was 1.33% (annualized). This
would suggest that Disney underperformed the sector by 0.70%. In fact, a
company’s positive Jensen’s alpha can be entirely attributable to sector
performance. Conversely, a company can have a negative Jensen’s alpha and
impeccable management at the same time.
