Hedge Fund Performance and Persistence in Bull and Bear Markets

40 Pages Posted: 9 Jan 2004

See all articles by Daniel P.J. Capocci

Daniel P.J. Capocci

HEC - Université de Liège; Luxembourg School of Finance; Edhec Risk and Management Research Center

A. Corhay

University of Liege - Department of Financial Management; Maastricht University - Department of Finance

Georges Hübner

HEC Liège

Multiple version iconThere are 2 versions of this paper

Date Written: December 23, 2003


This paper tests the performance of 2894 hedge funds in a time period that encompasses unambiguously bullish and bearish trends whose pivot is commonly set at March 2000. Our database proves to be fairly trustable with respect to the most important biases in hedge funds studies, despite the high attrition rate of funds observed in the down market. We apply an original ten-factor composite performance model that achieves very high significance levels. The analysis of performance indicates that most hedge funds significantly out-performed the market during the whole test period, mostly thanks to the bullish sub-period. In contrast, no significant under-performance of individual hedge funds strategies is observed when markets headed south. The analysis of persistence yields very similar results, with most of the predictability being found among middle performers during the bullish period. However, the Market Neutral strategy represents a remarkable exception, as abnormal performance is sustained throughout and significant persistence can be found between the 20% and 69% best performers in this category, probably thanks to an extreme adaptability and a very active investment behavior.

Keywords: Hedge fund, hedge funds, carhart, capocci, hubner, performance, persistence, decile analysis

JEL Classification: G2, G11, G15

Suggested Citation

Capocci, PhD - CAIA, Daniel P.J. and Corhay, Albert H. R. F. and Hübner, Georges, Hedge Fund Performance and Persistence in Bull and Bear Markets (December 23, 2003). Available at SSRN: https://ssrn.com/abstract=483222 or http://dx.doi.org/10.2139/ssrn.483222

Daniel P.J. Capocci, PhD - CAIA (Contact Author)

HEC - Université de Liège ( email )

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Luxembourg School of Finance ( email )

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Albert H. R. F. Corhay

University of Liege - Department of Financial Management ( email )

Liege B-4000

Maastricht University - Department of Finance

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Georges Hübner

HEC Liège ( email )

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Liege, 4000
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