Professional Documents
Culture Documents
Monthly Dispersion
12%
Residual Error
Fund Dispersion
10
8
6
4
2
May99
Sep00
Jan02
May03
Sep04
Jan06
May07
Sep08
MorningstarAdvisor.com 29
Gray Matters
R^2
Average
100%
80
60
40
20
May99
Sep00
Jan02
May03
Sep04
Jan06
May07
Sep08
Market Movement
Excess-Market Time-Series
Cross-Sectional
0.25
0.2
0.15
0.1
0.05
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
R^2
Market Movement
Investment Strategy
Interaction Effect*
R-Squared
120%
100
80
60
40
20
0
20
BHB Equity Funds
Time-Series Regressions
*The interaction effect is a balancing term that makes the three return components of R-squared add up to 100%.
MorningstarAdvisor.com 31