Question

Using three years of monthly returns, an analyst estimated the following relationship between a mutual fund's excess returns and the market excess returns:
RP = -0.002936 + 0.3986RM -1.8423R2M + eP
The R2 of the regression was 21.26% and the t-statistics of the three regression coefficients were -0:37, 2.80 and -0.79, respectively. What can you say about the fund's timing ability based on this regression result?

Answer 1

There are three observations and three predictors (including intercept)

So

n =

3

k =

3

DF =

0

( n - k)

Since the number of observations equal number of predictors, so statistical significance cannot be calculated, also R2 is only 21.26% which represents that regression can only explain 21.26% of the variation.

So this regression is not a good explanation of the fund's ability to provide excess returns. And it is not possible to comment on the fund's timing ability based on the result