Mustafa Onur Caglayan is an Assistant Professor of Finance in the Faculty of Economics and Administrative Sciences at Ozyegin University in Alemdağ, Çekmeköy, Istanbul, Turkey. Sevan Ulutas is a Finance Ph.D. student at Ozyegin University in Istanbul, Turkey.
Emerging Market Exposures and the Predictability of Hedge Fund Returns
Article first published online: 20 DEC 2013
© 2013 Financial Management Association International
Volume 43, Issue 1, pages 149–180, Spring 2014
How to Cite
Caglayan, M. O. and Ulutas, S. (2014), Emerging Market Exposures and the Predictability of Hedge Fund Returns. Financial Management, 43: 149–180. doi: 10.1111/fima.12029
We are grateful to Marc Lipson (Editor) and an anonymous referee for their extremely helpful comments and suggestions. We also benefited from discussions with Turan Bali and seminar participants at the 2012 International Finance Congress, Özyeğin University, Federal Reserve Board, and Norwegian School of Economics. Finally, we thank Kenneth French, David Hsieh, and Ronnie Sadka for making a large amount of historical data publicly available in their online data library. All errors remain our responsibility.
- Issue published online: 10 MAR 2014
- Article first published online: 20 DEC 2013
- Accepted manuscript online: 21 JUN 2013 12:45PM EST
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.