Timing is Money: The Factor Timing Ability of Hedge Fund Managers
47 Pages Posted: 18 Jul 2016 Last revised: 27 Jul 2017
Date Written: July 2017
This paper studies the level, determinants, and implications of the factor timing ability of hedge fund managers. We find evidence in favor of factor timing ability, although with ample variation in timing skills across investment styles, factors, and time. Our analysis shows that better factor timing skills are related to funds that are younger, smaller, have higher incentive fees, have a smaller restriction period, and make use of leverage. Factor timing is associated with outperformance. Out-of-sample, the top factor timing funds outperform the bottom factor timing funds with a significant 1% per annum. Timing skills, though, do not lead to higher net flow.
Keywords: Hedge funds, market timing, factor investing, factor timing
JEL Classification: G23, G11
Suggested Citation: Suggested Citation