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- Title
Mutual Fund's R2 as Predictor of Performance.
- Authors
Amihud, Yakov; Goyenko, Ruslan
- Abstract
We propose that fund performance can be predicted by its R2, obtained from a regression of its returns on a multifactor benchmark model. Lower R2 indicates greater selectivity, and it significantly predicts better performance. Stock funds sorted into lowest-quintile lagged R2 and highest-quintile lagged alpha produce significant annual alpha of 3.8%. Across funds, R2 is positively associated with fund size and negatively associated with its expenses and manager's tenure.
- Subjects
MUTUAL funds; BENCHMARKING (Management); ALPHA coefficient (Finance); STOCK funds; REGRESSION analysis; STOCK price forecasting; MATHEMATICAL models; FORECASTING
- Publication
Review of Financial Studies, 2013, Vol 26, Issue 3, p667
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hhs182