Do Market Timing Hedge Funds Time the Market?
- 1 December 2007
- journal article
- research article
- Published by Cambridge University Press (CUP) in Journal of Financial and Quantitative Analysis
- Vol. 42 (4), 827-856
- https://doi.org/10.1017/s0022109000003410
Abstract
This paper examines whether self-described market timing hedge funds have the ability to time the U.S. equity market. We propose a new measure for timing return and volatility jointly that relates fund returns to the squared Sharpe ratio of the market portfolio. Using a sample of 221 market timing funds during 1994–2005, we find evidence of timing ability at both the aggregate and fund levels. Timing ability appears relatively strong in bear and volatile market conditions. Our findings are robust to other explanations, including public information-based strategies, options trading, and illiquid holdings. Bootstrap analysis shows that the evidence is unlikely to be attributed to luck.Keywords
This publication has 50 references indexed in Scilit:
- Can mutual fund "stars" really pick stocks? New evidence from a bootstrap analysisThe Journal of Finance, 2006
- Timing Ability in the Focus Market of Hedge FundsSSRN Electronic Journal, 2006
- Double or Nothing: Patterns of Equity Fund Holdings and TransactionsSSRN Electronic Journal, 2005
- Do Hedge Funds Hedge?The Journal of Portfolio Management, 2001
- Hedge Funds: The Living and the DeadJournal of Financial and Quantitative Analysis, 2000
- Monthly Measurement of Daily TimersJournal of Financial and Quantitative Analysis, 2000
- Common risk factors in the returns on stocks and bondsJournal of Financial Economics, 1993
- On Timing and SelectivityThe Journal of Finance, 1986
- Components of Investment PerformanceThe Journal of Finance, 1972
- THE PERFORMANCE OF MUTUAL FUNDS IN THE PERIOD 1945–1964The Journal of Finance, 1968