Performance Persistence of Equity Market Neutral Hedge Funds

This article aims at testing empirically the performance persistence of equity market neutral hedge funds. A market neutral strategy combines both long and short positions. The net exposure is equal to zero. The purpose of using such strategy is to eliminate the market risk. Guirguis,(2005), examined the major building blocks that affect the performance of hedge funds: incentive fees, management fees, size, age, hurdle rate, high watermark provision and lockup period. According to my findings the results are mixed. Management fees and age affect significantly the performance of hedge funds. My findings suggest that there are other factors that could contribute to this deviation such as lock-up periods, hurdle rate and high water mark. Dummy variables applied on the probit binary regression equation suggest that these three factors constitute a significant explanation of the performance persistence. The sample is provided from Data Feeder dataset. It includes equity market neutral hedge funds for the period 1990 to 2003