Performance in the Hedge Funds Industry

Abstract

In this study, we analyze the performance persistence of hedge funds over short- and long-term horizons. Using a non-parametric test, we first observe that the Relative Value and the Specialist Credit strategies contain the highest proportion of outperforming managers. We next analyze the performance persistence of portfolios ranked according to their average past returns. Persistence is mainly observed over one- to three-month holding periods but rapidly vanishes as the formation or the holding period is lengthened. We finally examine long-term risk-adjusted returns persistence of hedge fund portfolio within an APT framework. This leads us to detect a slight overreaction pattern that is more pronounced among the directional hedge fund strategies.