Review of Financial Studies Vol. 26 No. 3 2012
Mutual Fund's R2 as Predictor of Performance
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.
- DOI
- 10.1093/rfs/hhs182
- Volume
- 26
- Issue
- 3
- Pages
- 667-694
- Language
- en
- Sources
- openalex crossref