According to a new study "Unbundling Hedge Fund Betas" by by Ulloa, Giamouridis, Mesomeris, and Noorizadesh there's evidence that hedge funds increase betas prior to market upswings. Here's the abstract:
Read the whole thing (downloadable copy at SSRN) here.
This article is concerned with the systematic exposures of equity hedge fund managers. In particular we seek common equity hedge fund systematic exposures through rigorous model selection techniques. We study their time variance to examine if equity hedge fund style characteristics are stable through time. Most importantly, we explore the informational role of manager decisions to shift their exposures to certain styles. Our results suggest that equity fund managers are exposed to three dominant style strategies, namely the 'market', 'value' and 'momentum'. We also discover that there is a considerable degree of variability in the factor exposures over time for the various dominant sources of systematic risk/return. Finally, we show evidence that managers vary their exposures to the 'market' in time to exploit favourable market moves. A similar pattern is however not observed for their 'value' or 'momentum' exposures.
HT: All About Alpha