• Selected
• Entire List

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.

Hedge fund, hedge funds, carhart, capocci, hubner, performance, persistence, decile analysis

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. The 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. An original ten-factor composite performance model is applied that achieves very high significance levels. The analysis of performance indicates that most hedge funds significantly outperformed the market during the whole test period, mostly thanks to the bullish subperiod. In contrast, no significant underperformance 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 behaviour.

Hedge funds, funds of funds, selection bias, abnormal returns, bullish market, bearish market, persistence

Abstract:
Stock returns series generally exhibit time-varying volatility. Therefore, one can cast doubt on the way abnormal returns are calculated and consequently interpreted in traditional event studies. In this paper we apply a market model which accounts for GARCH effects leading to more efficient estimators. Using a sample of divestitures, we empirically investigate how this adjustment affects the magnitude of the abnormal returns associated with an event.