Hedge Fund Characteristics and Performance Persistence

Item Type Journal paper
Abstract

In this paper, we investigate the performance persistence of hedge funds over time horizons between 6 and 36 months based on a merged sample from the Lipper/TASS and CISDM databases for the time period from 1994 to 2008. Unlike previous literature, we use a panel probit regression approach to identify fund characteristics that are significantly related to performance persistence. We then investigate the performance of two-way sorted portfolios where sorting is based on past performance and one of the additional fund characteristics identified as persistence-enhancing in the probit analysis. We find statistically and economically significant performance persistence for time horizons of up to 36 months. Although we identify several fund characteristics that are strongly correlated with the probability of observing performance persistence, we find only one fund characteristic, a strategy distinctiveness index that attempts to measure manager skills and the uniqueness of the hedge fund's trading strategies, to have the ability to systematically improve performance persistence up to a time horizon of 24 months. The economic magnitude of this improvement amounts to a sizeable increase in alpha by approximately 4.0% and 2.3% p.a. for annual and biennial rebalancing, respectively.

Authors Ammann, Manuel; Huber, Otto & Schmid, Markus
Journal or Publication Title European Financial Management
Language English
Keywords Hedge Funds, Performance, Alpha, Factor Models, Performance Persistence
Subjects business studies
Institute/School s/bf - Swiss Institute of Banking and Finance
SoF - School of Finance
HSG Classification contribution to scientific community
Refereed Yes
Date 5 November 2010
Publisher Wiley-Blackwell
Place of Publication Oxford
Number early view
Page Range 209-250
Number of Pages 42
ISSN 1354-7798
ISSN-Digital 1468-036X
Publisher DOI 10.1111/j.1468-036X.2010.00574.x
Depositing User Prof. Dr. Manuel Ammann
Date Deposited 23 Jan 2012 10:37
Last Modified 23 Aug 2016 11:11
URI: https://www.alexandria.unisg.ch/publications/209076

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Citation

Ammann, Manuel; Huber, Otto & Schmid, Markus (2010) Hedge Fund Characteristics and Performance Persistence. European Financial Management, (early view). 209-250. ISSN 1354-7798

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https://www.alexandria.unisg.ch/id/eprint/209076
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