Author:
Amihud Yakov,Goyenko Ruslan
Abstract
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.
Publisher
Oxford University Press (OUP)
Subject
Economics and Econometrics,Finance,Accounting
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