Can Hedge Funds Time the Market?

Abstract

We answer the somewhat narrower question of whether hedge funds adjust their conditional market exposure in response to real-time changes in macroeconomic conditions, and whether doing so improves their performance. We find that hedge funds differ substantially in their responsiveness to macroeconomic data. The most pro-cyclical market timers outperform their less active and counter-cyclical peers by over four percent annualized with a risk adjusted alpha of 5.5 percent.

Keywords: nowcasting, business cycle, hedge funds, market timing

JEL Classification: E32, G11, G20