Do Hot Hands Exist Among Hedge Fund Managers? An Empirical Evaluation
Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); SAIF; ISB
University of Arkansas, Fayetteville - Sam M. Walton College of Business, Department of Finance
Journal of Finance, 65 -1, 217-255.
AFA 2007 Chicago Meetings Paper
We examine whether hot hands exist among hedge fund managers. In measuring performance persistence, we use hedge fund style benchmarks. This allows us to identify managers with valuable skills, and also to control for option-like features inherent in returns from hedge fund strategies. We take into account the possibility that reported asset values may be based on stale prices. We develop a statistical model that relates a hedge fund's performance to its decision to liquidate or close in order to infer the performance of a hedge fund that left the database. While we find significant performance persistence among superior funds we find little evidence of persistence among inferior funds.
The Appendices for this paper are available at the following URL: http://ssrn.com/abstract=2278686
Number of Pages in PDF File: 49
Keywords: hedge funds, portfolio performance, performance evaluation, style analysis
JEL Classification: G1, G2Accepted Paper Series
Date posted: March 20, 2005 ; Last revised: June 17, 2013
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