Only Winners in Tough Times Repeat: Hedge Fund Performance Persistence over Different Market Conditions
47 Pages Posted: 13 Apr 2013 Last revised: 4 Oct 2018
There are 2 versions of this paper
Only Winners in Tough Times Repeat: Hedge Fund Performance Persistence over Different Market Conditions
Only Winners in Tough Times Repeat: Hedge Fund Performance Persistence Over Different Market Conditions
Date Written: November 10, 2016
Abstract
We provide novel evidence that hedge fund performance is persistent following weak hedge fund markets, but is not persistent following strong markets. Specifically, we construct two performance measures, RET_DOWN and RET_UP, conditioned on the level of overall hedge fund sector returns. After adjusting for risks, funds in the highest RET_DOWN quintile outperform funds in the lowest quintile by about 7% in the subsequent year, whereas funds with better RET_UP do not outperform subsequently. The RET_DOWN can predict future fund performance over a horizon as long as 3 years, for both winners and losers, and for funds with few share restrictions.
Keywords: Hedge funds, Conditional performance, Performance persistence
JEL Classification: G10, G23
Suggested Citation: Suggested Citation
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