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Multi-Period Performance Persistence Analysis of Hedge Funds

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Author Info
Agarwal, Vikas
Naik, Narayan Y.
Abstract

Since hedge funds specify significant lock-up periods, we investigate persistence in the performance of hedge funds using a multi-period framework in which the likelihood of observing persistence by chance is lower than in the traditional two-period framework. Under the null hypothesis of no manager skill (no persistence), the theoretical distribution of observing wins or losses follows a binormial distribution. We test this hypothesis using the traditional two-period framework and compare the findings with the results obtained using our multi-period framework. We examine whether persistence is sensitive to the length of return measurement intervals by using quarterly, half-yearly and yearly returns. We find maximum persistence at the quarterly horizon indicating that presistence among hedge fund managers is short term in nature.

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File URL: http://journals.cambridge.org/abstract_S0022109000009212
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Publisher Info
Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 35 (2000)
Issue (Month): 03 (September)
Pages: 327-342
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cup:jfinqa:v:35:y:2000:i:03:p:327-342_00

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  1. Mila Getmansky & Andrew W. Lo & Igor Makarov, 2003. "An Econometric Model of Serial Correlation and Illiquidity in Hedge Fund Returns," NBER Working Papers 9571, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Baquero, G. & Horst, J. ter & Verbeek, M., 2002. "Survival, look-ahead bias and the persistence in hedge fund performance," Discussion Paper 111, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  3. Luis Ferruz, José L. Sarto, Maria Vargas, 2004. "Parametric and Non-Parametric Analysis of Performance Persistence in Spanish Investment Funds," Frontiers in Finance and Economics, Lille Graduate School of Management, vol. 1(2), pages 85-100, December. [Downloadable!]
  4. Nicholas Chan & Mila Getmansky & Shane M. Haas & Andrew W. Lo, 2005. "Systemic Risk and Hedge Funds," NBER Working Papers 11200, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Nicholas Chan & Mila Getmansky & Shane M. Haas & Andrew W. Lo, 2007. "Systemic Risk and Hedge Funds," NBER Chapters, in: The Risks of Financial Institutions, pages 235-338 National Bureau of Economic Research, Inc. [Downloadable!]
  5. Baquero, G. & Verbeek, M.J.C.M., 2005. "A Portrait of Hedge Fund Investors: Flows, Performance and Smart Money," Research Paper ERS-2005-068-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  6. Horst, J.R. ter & Verbeek, M.J.C.M., 2004. "Fund liquidation, self-selection and look-ahead bias in the hedge fund industry," Research Paper ERS-2004-104-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
    Other versions:
  7. Loriana Pelizzon & Roberto Casarin & Andrea Piva, 2008. "Italian Equity Funds: Efficiency and Performance Persistence," Working Papers 2008_12, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
    Other versions:
  8. Cécile Moigne & Patrick Savaria, 2006. "Relative importance of hedge fund characteristics," Financial Markets and Portfolio Management, Springer, vol. 20(4), pages 419-441, December. [Downloadable!] (restricted)
  9. Alfredo Ciriaco Fernández & Rafael Santamaría Aquilué, 2005. "Persistencia de resultados en los fondos de inversión españoles," Investigaciones Economicas, Fundación SEPI, vol. 29(3), pages 525-573, September. [Downloadable!]
  10. A. Harri & B. W. Brorsen, 2004. "Performance persistence and the source of returns for hedge funds," Applied Financial Economics, Taylor and Francis Journals, vol. 14(2), pages 131-141, January. [Downloadable!] (restricted)
  11. Gregory Connor & Sheng Li, 2009. "Market Dispersion and the Profitability of Hedge Funds," Economics, Finance and Accounting Department Working Paper Series n2000109, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth. [Downloadable!]
  12. Zhi Da & Pengjie Gao & Ravi Jagannathan, 2008. "Informed Trading, Liquidity Provision, and Stock Selection by Mutual Funds," NBER Working Papers 14609, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Daniel P. J. Capocci, 2009. "The persistence in hedge fund performance: extended analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(3), pages 233-255. [Downloadable!]
  14. Dai, John & Sundaresan, Suresh, 2009. "Risk Management Framework for Hedge Funds: Role of Funding and Redemption Options on Leverage," MPRA Paper 16483, University Library of Munich, Germany. [Downloadable!]
  15. Steve Hogan & Mitch Warachka, 2008. "Implied measures of relative fund performance," Financial Markets and Portfolio Management, Springer, vol. 22(1), pages 47-66, March. [Downloadable!] (restricted)
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