Even Low-Quality Forecasts Have Proven to Be Valuable Because R-Squares

question 49

Multiple Choice

Even low-quality forecasts have proven to be valuable because R-squares of only ____________ in regressions of analysts' forecasts can be used to substantially improve portfolio performance.

• A) 0.656
• B) 0.452
• C) 0.258
• D) 0.153
• E) 0.001

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Definitions:

TIPS

Treasury Inflation-Protected Securities, which are U.S. government bonds that are indexed to inflation to protect investors from the negative effects of rising prices.

Coupon

The annual interest rate paid by a bond, expressed as a percentage of the face value, or the actual amount paid out to a bondholder annually.

Inflation

The rate at which there's an upward movement in the general price level of goods and services, weakening the purchasing capacity.

Convexity

A measure of the curvature or the degree of the curve in the relationship between bond prices and bond yields, indicating how the duration of a bond changes as the interest rate changes.