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Multi-Period Performance Persistence Analysis of Hedge Funds
Vikas Agarwal and Narayan Y. Naik
The Journal of Financial and Quantitative Analysis
Vol. 35, No. 3 (Sep., 2000), pp. 327-342
Published by: Cambridge University Press on behalf of the University of Washington School of Business Administration
Stable URL: http://www.jstor.org/stable/2676207
Page Count: 16
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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 binomial 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 persistence among hedge fund managers is short term in nature.
The Journal of Financial and Quantitative Analysis © 2000 University of Washington School of Business Administration