An online investment blogger advises investing in mutual funds that have performed badly the past year because 'regression to th

Question

Iteru [2.4K]

3 years ago

5

An online investment blogger advises investing in mutual funds that have performed badly the past year because 'regression to th

e mean tells us that they will do well next year.'
Is he correct?

Business

1 answer:

Kipish [7] · Answer 1 · 2022-05-30T16:23:18+03:00

Answer:

The correct answer is: No, he is not correct.

Explanation:

Regression to the mean is a statistical phrase that tries to explains that is something happened at the first attempt, it is likely to happen again at a second attempt and if it happens at the second attempt it is because it almost happened at the first attempt.

Then, following the concept of regression to the mean,<em> if a mutual fund performed badly on the last period, it is likely to perform even worse in the current period</em>. Thus, the online investment blogger is wrong.