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Performance persistence and the source of returns for hedge funds

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  • A. Harri
  • B. W. Brorsen

Abstract

Hedge funds exhibit performance persistence if some funds have consistently higher returns than others. Several procedures are used to determine if performance persists. The results show that performance persists in hedge funds with some funds showing the greatest persistence across all procedures. The results also indicate a strong negative relation between hedge fund capitalization and returns, which is consistent with the hypothesis that hedge fund managers exploit market inefficiencies.

Suggested Citation

  • A. Harri & B. W. Brorsen, 2004. "Performance persistence and the source of returns for hedge funds," Applied Financial Economics, Taylor & Francis Journals, vol. 14(2), pages 131-141.
  • Handle: RePEc:taf:apfiec:v:14:y:2004:i:2:p:131-141 DOI: 10.1080/0960310042000176407
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    References listed on IDEAS

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    2. Terrence Hallahan & Robert Faff, 2001. "Induced persistence or reversals in fund performance?: the effect of survivorship bias," Applied Financial Economics, Taylor & Francis Journals, vol. 11(2), pages 119-126.
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    5. Francisca Richter & B. Wade Brorsen, 2000. "Estimating fees for managed futures: a continuous-time model with a knockout feature," Applied Mathematical Finance, Taylor & Francis Journals, vol. 7(2), pages 115-125.
    6. Agarwal, Vikas & Naik, Narayan Y., 2000. "Multi-Period Performance Persistence Analysis of Hedge Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(03), pages 327-342, September.
    7. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", pages 125-132.
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    Citations

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    Cited by:

    1. Hentati-Kaffel, Rania & de Peretti, Philippe, 2015. "Detecting performance persistence of hedge funds," Economic Modelling, Elsevier, vol. 47(C), pages 185-192.
    2. Horst, Jenke ter & Salganik, Galla, 2014. "Style chasing by hedge fund investors," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 29-42.
    3. Salganik, G., 2010. "Essays on investment flows of hedge fund and mutual fund investors," Other publications TiSEM e5953fbe-064e-4647-9353-0, Tilburg University, School of Economics and Management.
    4. Rania Hentati Kaffel & Philippe De Peretti, 2014. "Detecting Performance Persistence of Hedge Funds : A Runs-Based Analysis," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00984777, HAL.
    5. Perez Katarzyna, 2014. "Polish Absolute Return Funds And Stock Funds. Short And Long Term Performance Comparison," Folia Oeconomica Stetinensia, De Gruyter Open, vol. 14(2), pages 179-197, December.
    6. Wolfgang Bessler & Wolfgang Drobetz & Jacqueline Henn Overbeck, 2005. "Hedge Funds: Die ,,Königsdisziplin" der Kapitalanlage," Working papers 2005/04, Faculty of Business and Economics - University of Basel.
    7. Dirk Broeders & Arco van Oord & David Rijsbergen, 2017. "Does it pay to pay performance fees? Empirical evidence from Dutch pension funds," DNB Working Papers 561, Netherlands Central Bank, Research Department.
    8. Benoît Dewaele, 2013. "Leverage and Alpha: The Case of Funds of Hedge Funds," Working Papers CEB 13-033, ULB -- Universite Libre de Bruxelles.
    9. Benoît Dewaele, 2013. "Portfolio Optimization for Hedge Funds through Time-Varying Coefficients," Working Papers CEB 13-032, ULB -- Universite Libre de Bruxelles.
    10. Gustavo Passarelli Giroud Joaquim & Marcelo Leite Moura, 2011. "Performance and Persistence of Brazilian Hedge Funds During the Financial Crisis," Brazilian Review of Finance, Brazilian Society of Finance, vol. 9(4), pages 525-548.
    11. Do, Viet & Faff, Robert & Veeraraghavan, Madhu, 2010. "Performance persistence in hedge funds: Australian evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(4), pages 346-362, October.
    12. Cécile Moigne & Patrick Savaria, 2006. "Relative importance of hedge fund characteristics," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 20(4), pages 419-441, December.

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