2 Quick Questions..

1-R^2 = error term in returns based style analysis? calculating the profit or loss from a alpha /beta separation: (G/L on long) + (G/L on short) + (Futures Profit) + (short rebate) ? How are we funding the futures with what money? and does this collateral earn interest?

  1. I would use the term "unexplained’ by the factor instead of “error” 2. You mean an equitized Long/Short? Money is from the short-side, you use short money to put up margin for future…in real world, those money earns min. interest.

in return based style analysis 1 - R^2 = 1 - style fit = selection selection is the fraction of return variation unexplained by style