Hedge Fund Manager Skill and Style-Shifting

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