Hedge Fund Manager Skill and Style-Shifting

George J. Jiang (), Bing Liang () and Huacheng Zhang ()
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George J. Jiang: Department of Finance and Management Science, Carson College of Business, Washington State University, Pullman, Washington 99164
Bing Liang: Department of Finance, Isenberg School of Management, University of Massachusetts Amherst, Amherst, Massachusetts 01003
Huacheng Zhang: Institute of Financial Studies, Southwestern University of Finance and Economics, Chengdu 610074, China

Management Science, 2022, vol. 68, issue 3, 2284-2307

Abstract: Using a novel style identification procedure, we show that style-shifting is a dynamic strategy commonly used by hedge fund managers. Three quarters of hedge funds shifted their investment styles at least once over the period from January 1994 to December 2013. We perform empirical tests of two hypotheses for the motivations of hedge fund style-shifting, namely backward-looking and forward-looking hypotheses. We find no evidence that style-shifting funds are backward-looking. Instead, we show evidence that managers of style-shifting funds exhibit both style-timing ability and the skill of generating abnormal returns in new styles. The new styles that hedge funds shift to on average outperform their old styles by 0.76% and style-shifting funds on average outperform their new style benchmark by 1.10% over the subsequent 12-month horizon. Finally, we show that small funds, winner funds, and funds with net inflows are more likely to shift styles.

Keywords: hedge funds; style-shifting; fund manager skill; fund performance; fund flow (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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