Hedge Fund Performance Persistence: A New Approach
Posted: 15 Dec 2008 Last revised: 4 Dec 2012
Date Written: December 15, 2008
Recent literature has found some evidence of performance persistence in hedge funds. This study investigated whether this persistence varies with fund characteristics, such as size and age. Previous research has found that funds face capacity constraints, that investment flows chase past performance, and that as funds age, they become more passively managed, which reduces the likelihood of performance persistence as funds grow older and larger. Consistent with this model, this study found that performance persistence is strongest among small, young funds. A portfolio of these funds with prior good performance outperformed a portfolio of large, mature funds with prior poor performance by 9.6 percent per year.
Keywords: Performance Measurement and Evaluation, Manager Selection, Alternative Investments, Hedge Fund Strategies, Portfolio Management, Hedge Fund Strategies
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