نقدینگی زمانبندی در بازار ارز خارجی : آیا صندوق های سرمایه گذاری این کار را انجام می دهند؟  Title: Timing the liquidity in the Foreign Exchange Market: Did the Hedge Funds do it?

Introduction This paper aims to investigate if liquidity timing ability in the FX market is a determinant of hedge funds’ returns, an area of the financial market that has not been addressed in the literature. Instead, most of the existing studies have been focused on the equity and bond markets. There has been evidence of market return/volatility timing abilities found in these two markets, but they are not necessarily applicable to the FX market. First, the FX market is the world’s largest financial market in terms of trading volume, and regarded as extremely liquid (Mancini, Ranaldo, Wrampelmeyer, 2013): its estimated average daily trading volume was 5.1 trillion U.S. dollars in April 2016 (Bank for International Settlements, 2016). Secondly, apart from being the largest financial market, the FX market is also observed to have a different liquidity pattern due to their unique characteristics based on the research of Kamaukh, et al (2015) which measures FX liquidity using intra-day data. It is therefore worth investigating if the timing abilities found in the equity and bond markets also exist in the FX market. Third, specific to the FX market, recent findings by Hsu, Taylor, and Wang (2016) revealed that more successful FX traders’ strategies consist of market timing skills alongside technical trade rules that give good timing inputs to enter and exit the FX market. An example in which timing strategy is used in the FX trading is the exploitation of the London 4 pm fix1 ; FX traders are known frequently to use this timing to determine upon the entry or exit from the FX market in order to profit from their trading2 . This leads to the investigation of a related and important issue underlying the Quantitative Easting (QE) programmes implemented in various countries that inject huge liquidity into the financial markets after the financial crisis of 2007-2008. The impact on the interest rate differential and the specific underlying currencies pairs is an issue worth investigating as to how international investors would respond via timing the liquidity conditions in the FX market. This would be a more relevant approach as compared to focusing on the market return timing and volatility timing as documented in the literature that have been applied to the equity and bond markets. Market timing is a topic that has been extensively researched in the academic literature. According to Admati, Bhattacharya, Pfleiderer and Ross (1986), the superior performance of an investment is due to either the manager’s timing ability or selection ability or a combination of the two. The academic literature treats market timing as a type of dynamic asset allocation strategy that adjusts a portfolio’s market exposure based on the manager’s forecast about the market (Admati et al., 1986; Chen, 2007; Chen and Liang, 2007). Therefore, the managers with a timing ability can increase portfolios’ market exposure before a market rise and decrease the portfolios’ market exposure prior to a market fall.