What Does a Low Value of R² Indicate When Performing

question 122

Multiple Choice

What does a low value of R² indicate when performing a linear regression of the relationship between changes in spot prices and changes in futures prices?

• A)It means the degree of confidence increases in the use of futures contracts, with a given hedge ratio estimate, to hedge cash asset-risk position.
• B)It means that we have little confidence that the slope coefficient from the regression is actually the true hedge ratio.
• C)It indicates that there is no statistical association at all between spot rates and future prices.
• D)It indicates that the regression line does not fit the scatter of observations.
• E)It indicates a low value of hedging ineffectiveness.

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