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http://ssrn.com/abstract=1650232
 
 

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Hedge Fund Characteristics and Performance Persistence


Manuel Ammann


University of St. Gallen - Swiss Institute of Banking and Finance

Otto R. Huber


Credit Suisse

Markus M. Schmid


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

Augst 28, 2010


Abstract:     
In this paper, we investigate the performance persistence of hedge funds over time horizons between 6 and 36 months based on a merged sample from the Lipper/TASS and CISDM databases for the time period from 1994 to 2008. Unlike previous literature, we use a panel probit regression approach to identify fund characteristics that are significantly related to performance persistence. We then investigate the performance of two-way sorted portfolios where sorting is based on past performance and one of the additional fund characteristics identified as persistence-enhancing in the probit analysis. We find statistically and economically significant performance persistence for time horizons of up to 36 months. Although we identify several fund characteristics that are strongly correlated with the probability of observing performance persistence, we find only one fund characteristic, a strategy distinctiveness index that attempts to measure manager skills and the uniqueness of the hedge fund’s trading strategies, to have the ability to systematically improve performance persistence up to a time horizon of 24 months. The economic magnitude of this improvement amounts to a sizeable increase in alpha by approximately 4.0% and 2.3% p.a. for annual and biennial rebalancing, respectively.

Number of Pages in PDF File: 49

Keywords: Hedge Funds, Performance, Alpha, Factor Models, Performance Persistence

JEL Classification: G11, G12, G23

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Date posted: July 30, 2010 ; Last revised: May 29, 2013

Suggested Citation

Ammann, Manuel and Huber, Otto R. and Schmid, Markus M., Hedge Fund Characteristics and Performance Persistence (Augst 28, 2010). Available at SSRN: http://ssrn.com/abstract=1650232 or http://dx.doi.org/10.2139/ssrn.1650232

Contact Information

Manuel Ammann
University of St. Gallen - Swiss Institute of Banking and Finance ( email )
Rosenbergstrasse 52
St. Gallen, CH-9000
Switzerland
Otto R. Huber
Credit Suisse ( email )
Eleven Madison Avenue
9th Floor
New York, NY 10010
United States
2123253726 (Phone)
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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