Hedge Fund Performance and Persistence in Bull and Bear Markets
Hedge Fund Performance and Persistence in Bull and Bear Markets DANIEL P.J. CAPOCCI University of Liege - Economics, Business Administration and Social Sciences A. CORHAY University of Liege - Department of Financial Management; University of Maastricht (formerly University of Limburg) - Department of Finance GEORGES HUBNER University of Liege - Economics, Business Administration and Social Sciences ------------------------------------------------------------------------ -------- Abstract: This paper tests the performance of 2894 hedge funds in a time period that encompasses unambiguously bullish and bearish trends whose pivot is commonly set at March 2000. Our database proves to be fairly trustable with respect to the most important biases in hedge funds studies, despite the high attrition rate of funds observed in the down market. We apply an original ten-factor composite performance model that achieves very high significance levels. The analysis of performance indicates that most hedge funds significantly out-performed the market during the whole test period, mostly thanks to the bullish sub-period. In contrast, no significant under-performance of individual hedge funds strategies is observed when markets headed south. The analysis of persistence yields very similar results, with most of the predictability being found among middle performers during the bullish period. However, the Market Neutral strategy represents a remarkable exception, as abnormal performance is sustained throughout and significant persistence can be found between the 20% and 69% best performers in this category, probably thanks to an extreme adaptability and a very active investment behavior.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
- Fung, William & Hsieh, David A., 2000. "Performance Characteristics of Hedge Funds and Commodity Funds: Natural vs. Spurious Biases," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(03), pages 291-307, September.
- Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
- Fabozzi, Frank J & Francis, Jack C, 1979. "Mutual Fund Systematic Risk for Bull and Bear Markets: An Empirical Examination," Journal of Finance, American Finance Association, vol. 34(5), pages 1243-50, December.
- Stephen J. Brown, 2001. "Careers and Survival: Competition and Risk in the Hedge Fund and CTA Industry," Journal of Finance, American Finance Association, vol. 56(5), pages 1869-1886, October.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0402018. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.