Performance in the Hedge Fund Industry : An Analysis of Short and Long-Term Persistence

In this study we analyze the performance persistence of hedge funds over different time horizons. Using a non-parametric test, we first observe that the relative value and the specialist credit strategies contain the highest proportion of outperforming mangers. Furthermore, there is no evidence the return volatility causes persistence. Next, we discuss the performance persistence of portfolios ranked based on their past average returns. Persistence is observed over short term horizons but it rapidly vanishes as the formation or the holding period lengthens. Finally, the long term risk adjusted returns persistence of hedge funds portfolios is examined within an APT framework.