Multi-Period Performance Persistence Analysis of Hedge Funds

Posted: 9 Mar 2001

See all articles by Vikas Agarwal

Vikas Agarwal

Georgia State University; University of Cologne - Centre for Financial Research (CFR)

Narayan Y. Naik

London Business School - Institute of Finance and Accounting

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Since hedge funds specify significant lockup periods, we investigate persistence in the performance of hedge funds using a multi-period framework in which the likelihood of observing persistence by chance is lower than that in the traditional two-period framework. Under the null hypothesis of no manager skill (no persistence), the theoretical distribution of observing wins or losses follows a binomial distribution. We test this hypothesis using the traditional two-period framework and compare the findings with the results obtained using our multi-period framework. We examine whether persistence is sensitive to the length of return measurement intervals by using quarterly, half-yearly and yearly returns. We find maximum persistence at quarterly horizon indicating that persistence among hedge fund managers is short-term in nature. It decreases as one moves to yearly returns and this finding is not sensitive to whether returns are calculated on a pre- or post-fee basis suggesting that the intra-year persistence finding is not driven by the way performance fees are imputed. The level of persistence in the multi-period framework is considerably smaller than that in the two-period framework with virtually no evidence of persistence using yearly returns under the multi-period framework. Finally persistence, whenever present, seems to be unrelated to whether the fund took directional bets or not.

Keywords: Hedge funds, performance, persistence

JEL Classification: G10, G19

Suggested Citation

Agarwal, Vikas and Naik, Narayan Y., Multi-Period Performance Persistence Analysis of Hedge Funds. Available at SSRN:

Vikas Agarwal

Georgia State University ( email )

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University of Cologne - Centre for Financial Research (CFR) ( email )

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Narayan Y. Naik (Contact Author)

London Business School - Institute of Finance and Accounting ( email )

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