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My question is related to an article which use predictive linear regression for the stock returns. There is told that R squared statistic of 1.6% is high. How can we measure which R squared is high? I am confused because I know that R squared statistic should be between 0 and 100 percents.

Thanks a lot!

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  • $\begingroup$ Yes $R^2$ is between 0% and 100% but in stock market prediction (which is a difficult task) it is always close to 0, maybe a few percent if you are lucky. Also keep in mind that $R^2=0.016$ means correlation i.e. $r=0.1265$ which maybe looks better to you. $\endgroup$ – noob2 Apr 2 '17 at 20:46
  • $\begingroup$ Thank you! So, if I have a linear regression and $R^2$ is calculated and $> 1.6 % $, this is statistically significant? $\endgroup$ – Ксения Цочева Apr 2 '17 at 21:33
  • $\begingroup$ You can see if it is significant or not with the F test. It depends on the number of observations and number of regressors. Usually the program which computes the $R^2$ also computes the $F$ value. $\endgroup$ – noob2 Apr 2 '17 at 21:44

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