Abstract

http://ssrn.com/abstract=676110
 
 

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Do Market Timing Hedge Funds Time the Market?


Yong Chen


Texas A&M University - Department of Finance

Bing Liang


University of Massachusetts at Amherst - Department of Finance & Operations Management; China Academy of Financial Research (CAFR)

June 12, 2006

Journal of Financial and Quantitative Analysis (JFQA), Vol. 42, No. 4, 2007
EFA 2005 Moscow Meetings

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.

Number of Pages in PDF File: 47

Keywords: Hedge funds, Return timing, Volatility timing, Bootstrap, Persistence

JEL Classification: G11, G23

Accepted Paper Series


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Date posted: March 18, 2005 ; Last revised: April 19, 2010

Suggested Citation

Chen, Yong and Liang, Bing, Do Market Timing Hedge Funds Time the Market? (June 12, 2006). Journal of Financial and Quantitative Analysis (JFQA), Vol. 42, No. 4, 2007; EFA 2005 Moscow Meetings. Available at SSRN: http://ssrn.com/abstract=676110

Contact Information

Yong Chen
Texas A&M University (TAMU) - Department of Finance ( email )
360 Wehner Building
College Station, TX 77843-4218
United States
HOME PAGE: http://people.tamu.edu/~ychen

Bing Liang (Contact Author)
University of Massachusetts at Amherst - Department of Finance & Operations Management ( email )
Amherst, MA 01003
United States
China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030
China

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