Emerging Market Exposures and the Predictability of Hedge Fund Returns
Forthcoming in Financial Management
39 Pages Posted: 9 Apr 2012 Last revised: 20 Dec 2013
Date Written: April 9, 2012
Abstract
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.
Keywords: emerging market betas, hedge funds, return predictability
JEL Classification: G10, G11, C13
Suggested Citation: Suggested Citation
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