49 Pages Posted: 30 Jul 2010 Last revised: 29 May 2013
Date Written: Augst 28, 2010
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.
Keywords: Hedge Funds, Performance, Alpha, Factor Models, Performance Persistence
JEL Classification: G11, G12, G23
Suggested Citation: Suggested Citation
Ammann, Manuel and Huber, Otto R. and Schmid, Markus, Hedge Fund Characteristics and Performance Persistence (Augst 28, 2010). Available at SSRN: https://ssrn.com/abstract=1650232 or http://dx.doi.org/10.2139/ssrn.1650232
By Bing Liang