Do Hot Hands Exist Among Hedge Fund Managers? An Empirical Evaluation

49 Pages Posted: 20 Mar 2005 Last revised: 17 Jun 2013

See all articles by Ravi Jagannathan

Ravi Jagannathan

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Indian School of Business (ISB), Hyderabad

Alexey Malakhov

University of Arkansas, Fayetteville - Sam M. Walton College of Business, Department of Finance

Dmitry Novikov

Credit Suisse

Multiple version iconThere are 2 versions of this paper

Date Written: 2010

Abstract

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

Keywords: hedge funds, portfolio performance, performance evaluation, style analysis

JEL Classification: G1, G2

Suggested Citation

Jagannathan, Ravi and Malakhov, Alexey and Novikov, Dmitry, Do Hot Hands Exist Among Hedge Fund Managers? An Empirical Evaluation (2010). Journal of Finance, 65 -1, 217-255.; AFA 2007 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=686604 or http://dx.doi.org/10.2139/ssrn.686604

Ravi Jagannathan (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
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847-491-8338 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER)

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Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
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Shanghai, 200030
China

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Alexey Malakhov

University of Arkansas, Fayetteville - Sam M. Walton College of Business, Department of Finance ( email )

Fayetteville, AR 72701
United States
479-575-6118 (Phone)
479-575-4230 (Fax)

HOME PAGE: http://www.alexeymalakhov.com

Dmitry Novikov

Credit Suisse ( email )

CRTI 4
P.O. Box
Zurich, CH-8070
Switzerland

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