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.

Question

Quizplus · Accepted Answer

A low value of R² (also known as the R-squared value) indicates that there is a low degree of correlation between the changes in spot prices and changes in futures prices. This means that there is little confidence that the slope coefficient from the regression is actually the true hedge ratio, suggesting that futures contracts may not be an effective tool for hedging cash asset-risk positions.

What Does a Low Value of R2 Indicate When Performing

What Does a Low Value of R² Indicate When Performing