Hedge Fund Manager Skills and Style-Shifting
63 Pages Posted: 12 Apr 2018 Last revised: 23 Feb 2019
Date Written: February 2019
We document that a significant portion of hedge funds (6.6% each quarter) shift their investment styles. More importantly, we find that managers of style-shifting funds possess both style-timing ability and skill of generating abnormal returns in the new styles. After shifting, these funds deliver significantly higher returns than they would have achieved in their old styles: an extra 0.61% (1.34%) over the subsequent 3 (12) months. This superior performance can be attributed mainly to fund managers’ expertise in the new styles over short-horizons and style-timing ability over long-horizons. 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 Performance; Manager Skill; Style-Chasing
JEL Classification: G11; G23
Suggested Citation: Suggested Citation