Tax efficiency is a measure ranging from 0 to 100 of how much tax due to capital gains stock or mutual funds investors pay on their investments each year; the higher the tax efficiency, the lower is the tax. The paper “At the Mercy of the Manager” (Financial Planning, Vol. 30(5), pp. 54–56) by C. Israelsen examined the relationship between investments in mutual fund portfolios and their associated tax efficiencies. The following table shows percentage of investments in energy securities (x) and tax efficiency (y) for 10 mutual fund portfolios.
For each exercise here, discuss what satisfying Assumptions 1–3 for regression inferences by the variables under consideration would mean.