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Emerging Market Exposures and the Predictability of Hedge Fund Returns
Author(s) -
Caglayan Mustafa Onur,
Ulutas Sevan
Publication year - 2013
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12029
Subject(s) - hedge fund , emerging markets , alternative beta , equity (law) , business , fund of funds , financial economics , market liquidity , monetary economics , open end fund , predictability , economics , institutional investor , finance , corporate governance , political science , law , physics , quantum mechanics
We examine emerging market and global macro hedge funds and find a significant positive relation between hedge funds’ future returns and their exposure to both emerging market equities and emerging market currencies. We present evidence that the strong predictive power of emerging market betas is related to the superior market‐timing ability of these fund managers. Results are robust after controlling for commonly used hedge fund factors, the emerging market equity index, lagged fund returns, liquidity risk, and fund characteristics. Our results suggest that hedge funds can earn positive excess returns by timing their exposure to emerging market securities.