Final answer:
Jensen's Alpha is preferred for assessing portfolio performance because it provides a detailed measure of a portfolio's return relative to the expected market return, highlighting a manager's skill in beating the market.
Step-by-step explanation:
Jensen's Alpha is a measure of a portfolio's performance, often preferred over the Sharpe and Treynor ratios because it offers a more specific insight into how much a portfolio's return is deviating from the predicted return given by the Capital Asset Pricing Model (CAPM). Unlike Sharpe and Treynor, Jensen's Alpha specifically considers the expected market return and the risk-free rate in its calculation, thus it accounts for systematic risk and determines the excess return that the portfolio generates over the anticipated return.
While each measure has its strengths and can provide valuable information, Jensen's Alpha is sometimes favored because it can assess a portfolio manager's capability to generate higher returns than what is suggested by the portfolio's beta (which is a measure of market risk). Therefore, a higher Jensen's Alpha indicates a manager's adeptness in selecting securities that contribute to superior performance relative to the market.