I always got confused when they show the R2 in the return based style analysis. Is 88% indicating the fund is being actively managed? Or 12% indicating that? thanks for your help!
R sq is a measure of how well the regression line fits the scattered data points
88% of the return of the port can be explained by return on the style indices. 12% is what is active mgt
siushun Wrote: ------------------------------------------------------- > I always got confused when they show the R2 in the > return based style analysis. > > Is 88% indicating the fund is being actively > managed? Or 12% indicating that? thanks for your > help! R square 88% means 88% of the manager’s return can be explained by the indices that are used in the return-based regression. The remaining 12% will go to active managment — which sounds significant from a 5% significance perspective. So you say the manager is not really indexing, ie. active managing. - sticky
sticky Wrote: ------------------------------------------------------- > siushun Wrote: > -------------------------------------------------- > ----- > > I always got confused when they show the R2 in > the > > return based style analysis. > > > > Is 88% indicating the fund is being actively > > managed? Or 12% indicating that? thanks for > your > > help! > > > R square 88% means 88% of the manager’s return can > be explained by the indices that are used in the > return-based regression. The remaining 12% will > go to active managment — which sounds > significant from a 5% significance perspective. > So you say the manager is not really indexing, ie. > active managing. > > - sticky what is the 5% significance perspective
bips Wrote: > what is the 5% significance perspective hmm… I have an impression (which may be wrong) that if that is within 5%, you won’t say it’s unexplained that much (ie. not really actively managing) - sticky
Isn’t R square a measure of the how well the return tracks the style index and the remainder a measure of the stock selection ?
CKBond Wrote: ------------------------------------------------------- > Isn’t R square a measure of the how well the > return tracks the style index and the remainder a > measure of the stock selection ? yes. are we not talking about the same thing? 
- sticky
sticky Wrote: ------------------------------------------------------- > siushun Wrote: > -------------------------------------------------- > ----- > > I always got confused when they show the R2 in > the > > return based style analysis. > > > > Is 88% indicating the fund is being actively > > managed? Or 12% indicating that? thanks for > your > > help! > > > R square 88% means 88% of the manager’s return can > be explained by the indices that are used in the > return-based regression. The remaining 12% will > go to active managment — which sounds > significant from a 5% significance perspective. > So you say the manager is not really indexing, ie. > active managing. > > - sticky This isn’t the place for a hypothesis test. You can’t do a test on say H0:R2=100% because R2 is a statistic not a parameter. It would be reasonable to say that " R2 > x% => indexer" but the x is jusr arbitrary.
At what point does a high R^2 imply index management?
s23dino Wrote: ------------------------------------------------------- > At what point does a high R^2 imply index > management? 98%+ i assume
wouldn’t that mean 2% active…anyhow it’ll probably be tough call on exam, since they put it on last yrs exam I doubt we’ll seen it then again they will probably have one with an R^2 of 97…
s23, there is a table in CFAI that says active is anything with tracking risk 2%+
ahhh good deal thanks, I read through CFAI readings twice but I don’t remember but of course I feel like someone had my mind erased after reading that stuff, it’s thick!