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A Panel Regression Approach to Holdings-Based Fund Performance Measures
[Multiperiod performance persistence analysis of hedge funds]

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Listed:
  • Wayne Ferson
  • Junbo L Wang

Abstract

Portfolio performance measures using holdings data are panel regressions. The returns of a fund’s stocks are regressed on its lagged portfolio weights. Stock fixed effects isolate average performance from time-series predictive ability. Control variables condition for fund performance on the characteristics of the stocks held. The long-term performance of average holdings drives some of the classical measures, while predictive ability drives others. A “buy-and-hold drift,” where portfolio weights increase over time in the higher alpha stocks, affects performance measures. Investor flows respond to average performance net of the buy-and-hold drift. (JEL G11, G14, G23, G29).

Suggested Citation

  • Wayne Ferson & Junbo L Wang, 2021. "A Panel Regression Approach to Holdings-Based Fund Performance Measures [Multiperiod performance persistence analysis of hedge funds]," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 11(4), pages 695-734.
    • Handle: RePEc:oup:rasset:v:11:y:2021:i:4:p:695-734.
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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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