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Geopolitical risk hedging or timing: Evidence from hedge fund strategies

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  • Ma, Tianyi
  • Zhou, Xuting

Abstract

An increasing number of investors are concerned about how they can diversify risks and profits amid surging geopolitical uncertainties. Using a geopolitical risk timing/hedging model, we investigate whether hedge fund managers can effectively hedge or time geopolitical risks by adopting different trading strategies. We find that excluding those in the global macro category, hedge funds with higher minimum investments and management fees exhibit greater success in hedging geopolitical risks. Meanwhile, global macro hedge funds, which have longer lockup periods, are more adept at timing geopolitical risks by increasing their market exposures. Furthermore, hedge funds which are the top geopolitical risk hedgers and timers demonstrate higher economic value than those in the bottom group over the subsequent one and three months. Our findings provide valuable insights into private investors’ selection of hedge funds during periods of heightened geopolitical risk.

Suggested Citation

  • Ma, Tianyi & Zhou, Xuting, 2024. "Geopolitical risk hedging or timing: Evidence from hedge fund strategies," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:ecofin:v:74:y:2024:i:c:s1062940824001657
    DOI: 10.1016/j.najef.2024.102240
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    Keywords

    Geopolitical risk; Hedge funds; Market timing ability;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • F30 - International Economics - - International Finance - - - General

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