|
Archive@NYU >
Stern School of Business >
Finance Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/28039
|
| Title: | Mutual Fund’s R^2 as Predictor of Performance |
| Authors: | Amihud, Yakov
Goyenko, Ruslan |
| Issue Date: | 26-Feb-2009 |
| Series/Report no.: | FIN-08-046 |
| Abstract: | We propose that fund performance is predicted by its R^2, obtained by
regressing its return on the Fama-French-Carhart four benchmark
portfolios. Lower R2, or higher idiosyncratic risk relative to total
risk, measures selectivity or active management. We show that lagged R2
has significant negative predictive coefficient in predicting alpha or
Information Ratio. This is consistent with Cremers and Petajisto’s
(2008) results on the effect of selectivity. Funds ranked into lagged
lowest-quintile R2 and highest-quintile alpha produce significant alpha
of 2.8%. Also, both fund RMSE and return volatility predict the
following year’s performance with significant positive and
negative coefficients, respectively. Across funds, R^2 is an increasing
function of fund size and a decreasing function of its age, its manager
tenure and its past performance, but better performance induces funds to
subsequently increase their R^2. |
| URI: | http://hdl.handle.net/2451/28039 |
| Appears in Collections: | Finance Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
