Abstract
This work examines hedge fund managers' timing skills by exploring whether they can time market news. Market news is constructed by decomposing unexpected market returns into cash-flow and discount-rate shocks. We find strong evidence of the timing of market news, especially cash-flow timing, and bootstrap analyses reveal that the timing of market cash flow and discount rate news by top-sorted timers cannot be attributed to pure luck. Out-of-sample estimates show that top cash-flow (discount-rate) timers outperform bottom timers by 3.168 to 3.768 per cent (1.80-2.436%) per annum on a risk-adjusted basis. Cash-flow news provides much more performance persistence than discount-rate news. Differentiating between the timing of and reaction to market news delivers useful results. These findings highlight the importance of market news in investment decisions.
| Original language | English |
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| Number of pages | 31 |
| Journal | China Accounting and Finance Review |
| Volume | 23 |
| Issue number | 3 |
| Publication status | Published - 2021 |