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

47 Pages Posted: 27 Apr 2006 Last revised: 2 Jul 2009

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

Dmitry Novikov

Credit Suisse

Alexey Malakhov

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

Multiple version iconThere are 2 versions of this paper

Date Written: February 2006

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.

Suggested Citation

Jagannathan, Ravi and Novikov, Dmitry and Malakhov, Alexey, Do Hot Hands Exist Among Hedge Fund Managers? An Empirical Evaluation (February 2006). NBER Working Paper No. w12015. Available at SSRN: https://ssrn.com/abstract=881249

Ravi Jagannathan (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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National Bureau of Economic Research (NBER)

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

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

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Dmitry Novikov

Credit Suisse ( email )

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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

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