Only Winners in Tough Times Repeat: Hedge Fund Performance Persistence over Different Market Conditions

47 Pages Posted: 13 Apr 2013 Last revised: 4 Oct 2018

See all articles by Zheng Sun

Zheng Sun

University of California, Irvine - Paul Merage School of Business

Ashley Wang

Federal Reserve Board

Lu Zheng

University of California, Irvine - Paul Merage School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 10, 2016

Abstract

We provide novel evidence that hedge fund performance is persistent following weak hedge fund markets, but is not persistent following strong markets. Specifically, we construct two performance measures, RET_DOWN and RET_UP, conditioned on the level of overall hedge fund sector returns. After adjusting for risks, funds in the highest RET_DOWN quintile outperform funds in the lowest quintile by about 7% in the subsequent year, whereas funds with better RET_UP do not outperform subsequently. The RET_DOWN can predict future fund performance over a horizon as long as 3 years, for both winners and losers, and for funds with few share restrictions.

Keywords: Hedge funds, Conditional performance, Performance persistence

JEL Classification: G10, G23

Suggested Citation

Sun, Zheng and Wang, Ashley and Zheng, Lu, Only Winners in Tough Times Repeat: Hedge Fund Performance Persistence over Different Market Conditions (November 10, 2016). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2249033 or http://dx.doi.org/10.2139/ssrn.2249033

Zheng Sun

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

Ashley Wang (Contact Author)

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Lu Zheng

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States
9498248365 (Phone)

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