What Does a Low Value of R² Indicate

question 69

Multiple Choice

What does a low value of R² indicate?

• 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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Definitions:

Price of Steel

Refers to the current market value or cost of steel, a critical material in various industries, influenced by supply, demand, and international market conditions.

Equilibrium Price

The price at which the quantity of a product offered is equal to the quantity of the product demanded, leading to a stable market condition.

Equilibrium Quantity

The quantity of goods or services supplied and demanded at the point where the supply and demand curves intersect.

Supply Decreases

A situation where the quantity of a good or service that producers are willing and able to offer for sale at a given price is reduced.