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.

Question

Quizplus · Accepted Answer

A low value of R² indicates that we have little confidence that the slope coefficient from the regression is actually the true hedge ratio. In other words, the regression line may not accurately predict future prices based on spot rates, making it difficult to effectively hedge cash asset-risk positions.

What Does a Low Value of R2 Indicate

What Does a Low Value of R² Indicate