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1 January Effect

Market anomaly whereby stock prices throughout most the world have a propensity to rise sharply during the initial part of the month of January.

2 Jensen’s Inequality

If x is a random variable and f(x) is convex, Jensen’s inequality states that E[f(x)] ≥ f[E(x)]. The inequality is reversed if f(x) is concave.

3 Jensen’s Measure

The alpha of an investment. It can be defined as:

, where is an average rate of returns for ith asset or portfolio; R _f = risk-free return; = average market rates of return; and β _i is the beta coefficient for the ith asset.

4 Johnson Hedge Model

Developed within the framework of modern portfolio theory. The Johnson hedge model (Johnson, 1960) retains the traditional objective of risk minimization but defines risk as the variance of return on a two-asset hedge portfolio. As in the two-parameter world of Markowitz’s (1959), the hedger is assumed to be infinitely risk averse (that is, the investor desires zero variance). Moreover, with portfolio...