Forthcoming, Review of Financial Studies
49 Pages Posted: 24 Dec 2008 Last revised: 10 Nov 2012
Date Written: October 23, 2012
We propose that fund performance can be predicted by its R2, obtained from a regression of its returns on a multi-factor 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.
Suggested Citation: Suggested Citation
Amihud, Yakov and Goyenko, Ruslan, Mutual Fund's R2 as Predictor of Performance (October 23, 2012). Forthcoming, Review of Financial Studies. Available at SSRN: https://ssrn.com/abstract=1319786 or http://dx.doi.org/10.2139/ssrn.1319786
By Andrew Ang