Abstract

http://ssrn.com/abstract=1168799
 
 

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The Performance Persistence of Equity Long/Short Hedge Funds


Samuel Manser


Swiss Institute of Banking and Finance

Markus M. Schmid


University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - SoF: School of Finance

October 31, 2008


Abstract:     
This paper examines the persistence of raw and risk-adjusted returns for equity long/short hedge funds using the portfolio approach of Hendricks, Patel, and Zeckhauser (1993). Only limited evidence of persistence is found for raw returns. Funds with the highest raw returns last year continue to outperform over the subsequent year, although not significantly, while there is no persistence in returns beyond one year. In contrast, we find performance persistence based on risk-adjusted return measures such as the Sharpe Ratio and in particular an alpha from a multifactor model. Funds with the highest risk-adjusted performance continue to significantly outperform in the following year. The persistence does not last longer than one year except for the worst performers. Funds with significant risk-adjusted returns show less exposure to the market, have high raw returns, and low volatility. These results are robust to adjustments for stale prices and subperiod analysis.

Number of Pages in PDF File: 26

Keywords: Performance persistence, Hedge funds, Equity long/short, Multifactor models

JEL Classification: G11, G12

working papers series


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Date posted: July 22, 2008 ; Last revised: June 15, 2013

Suggested Citation

Manser, Samuel and Schmid, Markus M., The Performance Persistence of Equity Long/Short Hedge Funds (October 31, 2008). Available at SSRN: http://ssrn.com/abstract=1168799 or http://dx.doi.org/10.2139/ssrn.1168799

Contact Information

Samuel Manser
Swiss Institute of Banking and Finance ( email )
Rosenbergstrasse 52
CH-9000 St. Gallen
Switzerland
Markus M. Schmid (Contact Author)
University of Saint Gallen - Swiss Institute of Banking and Finance ( email )
Rosenbergstrasse 52
St. Gallen, 9000
Switzerland
University of Saint Gallen - SoF: School of Finance ( email )
Rosenbergstrasse 52
St.Gallen, CH-9000
Switzerland

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