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Journal Article

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
DOI: 10.2307/2676207
Stable URL: http://www.jstor.org/stable/2676207
Page Count: 16
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Multi-Period Performance Persistence Analysis of Hedge Funds
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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 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.

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