The formula of Zhan Sen index is:
α = (ri？ rf)？ βi(rm？ Radio frequency)
Among them, α is the independent average rate of return of the I-th fund. If α is significantly positive, it means that the performance of the fund is better than the market; On the contrary, it is not as good as the market. It represents the difference between the return rate of fund portfolio and the return rate of market portfolio under the same systemic risk level.
Zhan Sen index is also based on the capital asset pricing model, and estimates the excess return of the fund according to SML. Its essence is to reflect the difference between the portfolio yield and the equilibrium yield calculated according to the portfolio β coefficient. Of course, the greater the difference, that is, the greater the Zhan Sen coefficient, the better the fund operation effect. If it is positive, it shows that the fund manager has extraordinary stock selection ability, and the evaluated fund is higher than the market average and has good investment performance relative to the market; A negative value indicates that the fund manager's stock selection ability is poor, but he can't run the index, so the performance of the evaluated fund is poor relative to the overall market; Zero means that the fund manager's stock selection ability is average and can only be equal to the index.
1968, Michael C. Jensen, an American economist, published the article "Performance of the same fund during 1945- 1964", and put forward this performance measurement index based on CAPM, which can evaluate the degree to which the fund's performance is better than the benchmark. By comparing the difference between the fund's rate of return in the investigation period and the expected rate of return obtained by the pricing model CAPM, that is, the actual return of the fund exceeds the expected return corresponding to the risk it bears, and the difference is the return directly related to the performance of the fund manager.
The Zhan Sen Index represents the excess returns obtained by the fund's performance exceeding the market benchmark portfolio. That is, Zhan Sen index >; 0, indicating that the performance of the fund is better than the market benchmark portfolio, and the larger the scale, the better the performance; On the other hand, if the Zhan Sen index is less than 0, it indicates that it is not performing well. Excellent fund products can pursue performance beyond the market through active investment management. This shows that fund investment should not only have income, but also obtain excess income beyond the market average. Quantifying and implementing this investment concept into fund products is to pursue the maximization of Zhan Sen index (or alpha value) through active management, thus creating the maximization of excess return of fund investment. Only by beating the market benchmark portfolio to obtain excess returns is the best interpretation of the concept of expert financial management. Only by investing in such fund products can investors truly achieve the purpose of entrusting financial management and obtaining the maximum income.