Timing is Money: The Factor Timing Ability of Hedge Fund Managers
40 Pages Posted: 18 Jul 2016 Last revised: 12 Feb 2020
Date Written: February 1, 2020
This paper studies the level, determinants, and implications of the factor timing ability of hedge fund managers. We find that approximately 30% of hedge funds display factor timing ability on at least one factor, concentrated especially at the market, size, and bond factors. Better factor timing skills are related to funds that are more experienced and more flexible. Factor timing is associated with outperformance. Out-of-sample, the top factor timing funds outperform the bottom factor timing funds with a significant 4.32% per annum. Timing skills, though, do not directly lead to higher net flow.
Keywords: Hedge funds, market timing, factor investing, factor timing
JEL Classification: G23, G11
Suggested Citation: Suggested Citation