Do Market Timing Hedge Funds Time the Market?

Many studies have questioned the ability of mutual funds and pension funds to time the market. In an article published in the December 2007 Journal of Financial and Quantitative Analysis, Chen and Liang examine the returns of 221 hedge funds self-identified as market timers. They find that, for the 1994-2005 period, evidence supports timing ability – especially in volatile or bear markets.

The results are robust to model specification and volatility timing. They do not appear to result primarily from option-like trading or luck.

The authors conclude that the flexible strategies associated with hedge funds are useful for professional market timers, and that funds promising market-timing results are likely to deliver them.

For more information, see all articles on: Active Management, Alternative Assets, Hedge Funds, Investment Returns, Performance Measurement, Research

See also:
  • Market Timing by Mutual Funds
  • Alternative Routes to Hedge Fund Return Replication
  • Are Hedge Fund Strategies Just About Leverage?
  • Benchmarking Issues for Hedge Funds
  • Determinants of Funds of Hedge Funds Performance
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