In returns-based style analysis, a coefficient of determination of 95 percent would suggest that

Question

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A coefficient of determination of 95 percent means that 95 percent of the portfolio return variability could be explained by the portfolio style used by the manager. This implies that the manager's investment decisions and style contributed significantly to the portfolio's returns. It does not suggest anything about the manager's performance compared to peers (A and B) or the contribution of stock selection skills to the portfolio's returns (D). Option E is incorrect as it suggests that only 5 percent of the portfolio return variability is attributable to portfolio style, which is the opposite of the correct answer.

In Returns-Based Style Analysis, a Coefficient of Determination of 95