"...we examine persistence in the performance of hedge fund managers and find a reasonable degree of persistence. Since this seems to be attributable more to the losers continuing to be losers instead of winners continuing to be winners, it highlights the importance of manager selection in case of hedge funds."
Agarwal and Naik (1999)
"Finally, using parametric and non-parametric methods, we examine persistence in the performance of hedge fund managers. We find a reasonable degree of persistence which seems to be attributable more to the losers continuing to be losers instead of winners continuing to be winners."
Agarwal and Naik (2000)
"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 quarterly horizon indicating that persistence among hedge fund managers is short-term in nature. It decreases as one moves to yearly returns and this finding is not sensitive to whether returns are calculated on a pre- or post-fee basis suggesting that the intra-year persistence finding is not driven by the way performance fees are imputed. The level of persistence in the multi-period framework is considerably smaller than that in the two-period framework with virtually no evidence of persistence using yearly returns under the multi-period framework. Finally persistence, whenever present, seems to be unrelated to whether the fund took directional bets or not."
Agarwal and Naik (2001)
"We find maximum persistence at the quarterly horizon indicating that persistence among hedge fund managers is short term in nature."
Agarwal and Naik (2001)
"We find that about 25 percent of hedge funds earn positive excess returns, and that the frequency and magnitude of funds' excess returns differ markedly by investment style. [...] and find evidence of significant persistence among both winners and losers. These findings together with our finding that hedge funds that pay managers higher incentive fees also have higher excess returns are consistent with the view that fund manager skill may be a partial explanation for the positive excess returns earned by hedge funds."
Edwards and Caglayan (2001)
"Using multi-factor models for the return on nine hedge fund indexes, where the factors are chosen to measure the many dimensions of financial risks (market, volatility, credit and liquidity risks), we find strong evidence of very significant predictability in hedge fund returns. We also find that the benefits in terms of tactical style allocation portfolios are potentially very large. Even more spectacular results are obtained both for an equity-oriented portfolio mixing traditional and alternative investment vehicles, and for a fixed-income oriented portfolio mixing traditional and alternative investment vehicles. These results do not seem to be significantly a¤ected by the presence of reasonably high transaction costs."
Amenc, Bied, and Martellini (2002)
"It is shown that the Specialist Credit and Relative Value investment strategies contain the highest proportion of managers who are continuously outperforming their peers. Furthermore, we observe no evidence that return volatility causes persistence.
Using hedge funds average returns for ranking purposes, we then examine the persistence of hedge funds portfolios. Persistence is detected over short-term holding periods (one to three months), but it rapidly vanishes as the formation or holding period lengthens. A half reversal emerges when the holding period reaches 36 months. However, a complete reversal of the portfolios' average returns is never observed. Finally, we use an APT framework to adjust for risk and use the managers' abnormal return as a performance criteria to examine hedge funds' long-term performance persistence. We find a slight overreaction pattern that is more pronounced among traditionally directional strategies."
Bares, Gibson and Gyger (2002)
"We showed there is a proof of persistence in performance in some cases but that persistence is not always constant over time."
Capocci (2002)
"...funds with persistently good (bad) performance attract larger (smaller) inflows compared to those that show no persistence."
Agarwal, Daniel and Naik (2004)
"Even when all funds are included up to their last available return, one cannot prevent that ex post conditioning biases affect standard estimates of performance persistence. In this paper we analyze the persistence in the performance of U.S. hedge funds taking into account look-ahead bias (multi-period sampling bias). To do so, we model attrition of hedge funds and analyze how it depends upon historical performance. Next, we use a weighting procedure that eliminates look-ahead bias in measures for performance persistence. The results show that the impact of look-ahead bias is quite severe, even though positive and negative survival-related biases are sometimes suggested to cancel out."
Baquero, Horst and Verbeek (2004)
"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."
Capocci, Corhay and Hubner (2003)
"We find little evidence of persistence in mean returns but do find strong persistence in hedge funds' standard deviations and their correlation with the stock market. Persistence in skewness and kurtosis is low but this could be due to the small size of the sample used. Despite the observed persistence, our study also shows that in absolute terms hedge funds' risk profiles are not easily predicted from historical returns alone. The true value of a hedge fund's track record therefore appears not to lie in its use as a predictor of future performance and risk, but primarily in the insight that it provides in a fund's risk profile relative to that of other funds in the same strategy group. The availability of a track record is important, but for a different reason than many investors think."
Kat and Menexe (2003)
"Using multi-factor models for the return on nine hedge fund indexes, where the factors are chosen to measure the many dimensions of financial risks (market, volatility, credit and liquidity risks), we find strong evidence of very significant predictability in hedge fund returns. We also find that the benefits in terms of tactical style allocation portfolios are potentially very large. Even more spectacular results are obtained both for an equity-oriented portfolio mixing traditional and alternative investment vehicles, and for a fixed-income oriented portfolio mixing traditional and alternative investment vehicles. These results do not seem to be significantly a¤ected by the presence of reasonably high transaction costs."
Kazemi, Schneeweis and Pancholi (2003)
"The results show that performance persists in hedge funds with some funds showing the greatest persistence across all the procedures."
Harri and Brorsen (2004)
"In addition, we find clear signs of persistence in abnormal performance, indicating that hedge fund managers show consistent skill over time."
Kat and Miffre (2005)