Conditions for Survival: Changing Risk and the Performance of Hedge Fund Managers and CTAs
We investigate whether hedge fund and commodity trading advisor [CTA] return variance is conditional upon performance in the first half of the year. Our results are consistent with the Brown, Harlow and Starks (1994) findings for mutual fund managers. We find that good performers in the first half of the year reduce the volatility of their portfolios, but not vice-versa. The result that manager "variance strategies" depend upon relative ranking not distance from the high water mark threshold is unexpected, because CTA manager compensation is based on this absolute benchmark, rather than relative to other funds or indices. We conjecture that the threat of disappearance is a significant one for hedge fund managers and CTAs. An analysis of performance preceding departure from the database shows an association between disappearance and underperformance. An analysis of the annual hazard rates shows that performers in the lowest decile face a serious threat of closure. We find evidence to support the fact that survivorship and backfilling are both serious concerns in the use of hedge fund and CTA data.
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.:
- Fung, William & Hsieh, David A, 1997. "Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 275-302.
- Lunde, Asger & Timmermann, Allan & Blake, David, 1999.
"The hazards of mutual fund underperformance: A Cox regression analysis,"
Journal of Empirical Finance,
Elsevier, vol. 6(2), pages 121-152, April.
- Allan Timmermann & Asger Lunde, 1998. "The Hazards of Mutual Fund Underperformance: A Cox Regression Analysis," FMG Discussion Papers dp302, Financial Markets Group.
- Lunde, Asger & Timmermann, Allan & Blake, David, 1998. "The Hazards of Mutual Fund Underperformance: A Cox Regression Analysis," University of California at San Diego, Economics Working Paper Series qt1pd3z1hm, Department of Economics, UC San Diego.
- Darryll Hendricks & Jayendu Patel & Richard Zeckhauser, 1997. "The J-Shape Of Performance Persistence Given Survivorship Bias," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 161-166, May.
- Stephen J. Brown & William N. Goetzmann & Roger G. Ibbotson & Stephen A. Ross, 1997. "Rejoinder: The J-Shape Of Performance Persistence Given Survivorship Bias," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 167-170, May.
- William N. Goetzmann & Jonathan Ingersoll, Jr. & Stephen A. Ross, 1998.
"High Water Marks,"
NBER Working Papers
6413, National Bureau of Economic Research, Inc.
- Mark Grinblatt & Sheridan Titman, 1989. "Adverse Risk Incentives and the Design of Performance-Based Contracts," Management Science, INFORMS, vol. 35(7), pages 807-822, July.
- Mark M. Carhart & Jennifer N. Carpenter & Anthony W. Lynch & David K. Musto, 2002. "Mutual Fund Survivorship," Review of Financial Studies, Society for Financial Studies, vol. 15(5), pages 1439-1463.
- Brown, Keith C & Harlow, W V & Starks, Laura T, 1996. " Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 51(1), pages 85-110, March.
- Starks, Laura T., 1987. "Performance Incentive Fees: An Agency Theoretic Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 17-32, March.
- Brown, Stephen J, et al, 1992. "Survivorship Bias in Performance Studies," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 553-80.
When requesting a correction, please mention this item's handle: RePEc:ysm:somwrk:ysm10. 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: ()
If references are entirely missing, you can add them using this form.