Hedge Fund Performance and Persistence in Bull and Bear Markets

European Journal of Finance, Vol. 11, No. 5, pp. 361-392, October 2005

Posted: 13 Nov 2005

See all articles by Georges Hübner

Georges Hübner

HEC Liège

A. Corhay

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

Daniel P.J. Capocci

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

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Abstract

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. The 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. An original ten-factor composite performance model is applied that achieves very high significance levels. The analysis of performance indicates that most hedge funds significantly outperformed the market during the whole test period, mostly thanks to the bullish subperiod. In contrast, no significant underperformance 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 behaviour.

Keywords: Hedge funds, funds of funds, selection bias, abnormal returns, bullish market, bearish market, persistence

JEL Classification: G2, G11, G15

Suggested Citation

Hübner, Georges and Corhay, Albert H. R. F. and Capocci, PhD - CAIA, Daniel P.J., Hedge Fund Performance and Persistence in Bull and Bear Markets. European Journal of Finance, Vol. 11, No. 5, pp. 361-392, October 2005. Available at SSRN: https://ssrn.com/abstract=846827

Georges Hübner (Contact Author)

HEC Liège ( email )

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Albert H. R. F. Corhay

University of Liege - Department of Financial Management ( email )

Liege B-4000
Belgium

Maastricht University - Department of Finance

Maastricht, 6200 MD
Netherlands
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+31-(0)43-3258530 (Fax)

Daniel P.J. Capocci, PhD - CAIA

HEC - Université de Liège ( email )

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Liege, 4000
Belgium
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+32/87787140 (Fax)

Luxembourg School of Finance ( email )

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Edhec Risk and Management Research Center ( email )

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France

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