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

See all articles by Mustafa Onur Caglayan

Mustafa Onur Caglayan

Florida International University

Sevan Ulutas

Garanti Asset Management

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

Caglayan, Mustafa Onur and Ulutas, Sevan, Emerging Market Exposures and the Predictability of Hedge Fund Returns (April 9, 2012). Forthcoming in Financial Management, Available at SSRN: https://ssrn.com/abstract=2037039 or http://dx.doi.org/10.2139/ssrn.2037039

Mustafa Onur Caglayan (Contact Author)

Florida International University ( email )

Miami, FL

Sevan Ulutas

Garanti Asset Management ( email )

Etiler Mah. Tepecik Yolu
Demirkent Sok. No:1 Besiktas
Istanbul, 34337
Turkey
+902123841385 (Phone)
+902123522909 (Fax)

HOME PAGE: http://www.garantiassetmanagement.com/

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