Only winners in tough times repeat : hedge fund performance persistence over different market conditions

Zheng Sun, Ashley W. Wang, and Lu Zheng

We provide novel evidence that hedge fund performance is persistent following weak hedge fund markets, but is not persistent following strong markets. Specifically, we construct two performance measures, DownsideReturns and UpsideReturns, conditioned on the level of overall hedge fund sector returns. After adjusting for risks, funds in the highest DownsideReturns quintile outperform funds in the lowest quintile by about 7% in the subsequent year, whereas funds with better UpsideReturns do not outperform subsequently. The DownsideReturns can predict future fund performance over a horizon as long as 3 years, for both winners and losers, and for funds with few share restrictions

MoreLess

Year of publication:	March 2016 ; This draft: March 2016
Authors:	Sun, Zheng ; Wang, Ashley W. ; Lu, Zheng
Publisher:	Washington, D.C. : Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board
Subject:	Conditional performance \| Hedge funds \| Performance Persistence \| Hedgefonds \| Hedge fund \| Kapitaleinkommen \| Capital income \| Performance-Messung \| Performance measurement \| Investmentfonds \| Investment Fund \| Portfolio-Management \| Portfolio selection