Hedge Fund Performance and Persistence in Bull and Bear Markets

Capocci Daniel, Corhay Albert and Hübner Georges
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Capocci Daniel: University of Liège
Corhay Albert: University of Liege
Hübner Georges: University of Liege

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Abstract: Hedge Fund Performance and Persistence in Bull and Bear Markets DANIEL P.J. CAPOCCI University of Liege - Economics, Business Administration and Social Sciences A. CORHAY University of Liege - Department of Financial Management; University of Maastricht (formerly University of Limburg) - Department of Finance GEORGES HUBNER University of Liege - Economics, Business Administration and Social Sciences ------------------------------------------------------------------------ -------- 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. Our 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. We apply an original ten-factor composite performance model that achieves very high significance levels. The analysis of performance indicates that most hedge funds significantly out-performed the market during the whole test period, mostly thanks to the bullish sub-period. In contrast, no significant under-performance 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 behavior.

Keywords: Hedge fund; hedge funds; carhart; capocci; hubner; performance; persistence; decile analysis (search for similar items in EconPapers)
JEL-codes: G2 G11 G15 (search for similar items in EconPapers)
Date: 2004-02-26
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0402018

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