Multi-Period Performance Persistence Analysis of Hedge Funds

Vikas Agarwal and Narayan Y. Naik

Journal of Financial and Quantitative Analysis, 2000, vol. 35, issue 3, 327-342

Abstract: Since hedge funds specify significant lock-up periods, we investigate persistence in the performance of hedge funds using a multi-period framework in which the likelihood of observing persistence by chance is lower than in the traditional two-period framework. Under the null hypothesis of no manager skill (no persistence), the theoretical distribution of observing wins or losses follows a binormial distribution. We test this hypothesis using the traditional two-period framework and compare the findings with the results obtained using our multi-period framework. We examine whether persistence is sensitive to the length of return measurement intervals by using quarterly, half-yearly and yearly returns. We find maximum persistence at the quarterly horizon indicating that presistence among hedge fund managers is short term in nature.

Date: 2000
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