Hedge Fund Manager Skills and Style-Shifting

Management Science, forthcoming

65 Pages Posted: 12 Apr 2018 Last revised: 18 Jun 2021

See all articles by George J. Jiang

George J. Jiang

Washington State University

Bing Liang

University of Massachusetts Amherst - Department of Finance

Huacheng Zhang

Southwestern University of Finance and Economics - Institute of Financial Studies

Date Written: February 1, 2019

Abstract

Utilizing a novel style identification procedure, we show that style-shifting is a dynamic strategy commonly employed by hedge fund managers. Three quarters of hedge funds shifted their investment styles at least once over the period from January 1994 to December 2013. We perform empirical tests of two hypotheses for the motivations of hedge fund style-shifting, namely backward-looking and forward-looking hypotheses. We find no evidence that style-shifting funds are backward-looking. Instead, we show evidence that managers of style-shifting funds exhibit both style-timing ability and the skill of generating abnormal returns in new styles. The new styles that hedge funds shift to on average outperform their old styles by 0.76% and style-shifting funds on average outperform their new style benchmark by 1.10% over the subsequent 12-month horizon. Finally, we show that small funds, winner funds, and funds with net inflows are more likely to shift styles.

Keywords: Hedge funds; Style-shifting; Fund manager skill; Fund performance; Fund flow

JEL Classification: G11; G23

Suggested Citation

Jiang, George and Liang, Bing and Zhang, Huacheng, Hedge Fund Manager Skills and Style-Shifting (February 1, 2019). Management Science, forthcoming, Available at SSRN: https://ssrn.com/abstract=3123660 or http://dx.doi.org/10.2139/ssrn.3123660

George Jiang

Washington State University ( email )

Department of Finance and Management Science
Carson College of Business
Pullman, WA 99-4746164
United States
509-3354474 (Phone)

HOME PAGE: http://directory.business.wsu.edu/bio.html?username=george.jiang

Bing Liang

University of Massachusetts Amherst - Department of Finance ( email )

Amherst, MA 01003
United States

Huacheng Zhang (Contact Author)

Southwestern University of Finance and Economics - Institute of Financial Studies ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

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