Can hedge funds time market liquidity?

• 成果类型: Article
• 署名作者: Cao, Charles; Chen, Yong; Liang, Bing; Lo, Andrew W.
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park; Texas A&M University System; Texas A&M University College Station; Mays Business School; University of Massachusetts System; University of Massachusetts Amherst; Massachusetts Institute of Technology (MIT); National Bureau of Economic Research
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2013.03.009
• 发表日期: 2013
• 页码: 493-516
• 关键词: HEDGE FUNDS; Liquidity timing; Investment value; Liquidity reaction; Performance persistence

摘要

We explore a new dimension of fund managers' timing ability by examining whether they can time market liquidity through adjusting their portfolios' market exposure as aggregate liquidity conditions change. Using a large sample of hedge funds, we find strong evidence of liquidity timing. A bootstrap analysis suggests that top-ranked liquidity timers cannot be attributed to pure luck. In out-of-sample tests, top liquidity timers outperform bottom timers by 4.0-5.5% annually on a risk-adjusted basis. We also find that it is important to distinguish liquidity timing from liquidity reaction, which primarily relies on public information. Our results are robust to alternative explanations, hedge fund data biases, and the use of alternative timing models, risk factors, and liquidity measures. The findings highlight the importance of understanding and incorporating market liquidity conditions in investment decision making. (C) 2013 Elsevier B.V. All rights reserved.