Mutual Fund's R^2 as Predictor of Performance

@article{Amihud2012MutualFR,
  title={Mutual Fund's R^2 as Predictor of Performance},
  author={Yakov Amihud and Ruslan Goyenko},
  journal={New York University Stern School of Business Research Paper Series},
  year={2012}
}
  • Y. Amihud, Ruslan Goyenko
  • Published 23 October 2012
  • Computer Science
  • New York University Stern School of Business Research Paper Series
We propose that fund performance can be predicted by its R-super-2, obtained from a regression of its returns on a multifactor benchmark model. Lower R-super-2 indicates greater selectivity, and it significantly predicts better performance. Stock funds sorted into lowest-quintile lagged R-super-2 and highest-quintile lagged alpha produce significant annual alpha of 3.8%. Across funds, R-super-2 is positively associated with fund size and negatively associated with its expenses and manager's… 
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