Are Managers of Funds of Hedge Funds Good Market Timers?

Abstract

The author gathers evidence about the market-timing skills of fund of funds (FOF) managers during the 1993-2001 period using FOF indices as benchmarks. He uses the Treynor-Mazuy (1966) (TM) and the Henriksson-Merton (1981) (HM) unconditional and conditional market-timing models and follows the methods used by Ferson and Warther (1996) and Ferson and Schadt (1996). By conditioning betas, the author investigates whether FOF managers can in times of changing economic conditions successfully interpret publicly available market information to their benefit using public information variables. He examines FOF returns with public information variables using the TM and HM models.