Does Industry Timing Ability of Hedge Funds Predict Their Future Performance, Survival, and Fund Flows?
Journal of Financial and Quantitative Analysis, forthcoming
70 Pages Posted: 8 Mar 2019 Last revised: 6 Oct 2020
Date Written: September 15, 2020
This paper investigates hedge funds’ ability to time industry-specific returns and shows that funds’ timing ability in the manufacturing industry improves their future performance, probability of survival, and ability to attract more capital. The results indicate that best industry-timing hedge funds in the manufacturing sector have the highest return exposure to earnings surprises. This, together with persistently sticky earnings surprises, transparent information environment in regards to earnings releases, and large post-earnings-announcement drift in the manufacturing industry, explain to a great extent why best-timing hedge funds can generate significantly larger future returns compared to worst-timing hedge funds.
Keywords: hedge funds; timing ability; industry returns
JEL Classification: G10; G11; C13
Suggested Citation: Suggested Citation