I am grateful to an anonymous referee, Georgi Bontschev, Wolfgang Drobetz, Bill Fung, Marco Navone, Thomas Parnitzke, Hato Schmeiser, Frank Schuhmacher, Richard J. Taffler, and the participants of the 16th annual meeting of the European Financial Management Association (Vienna) and the IRC Conference on Hedge Fund Replication & Alternative Beta (Geneva) for valuable suggestions and comments on an earlier draft of this paper.
Does Hedge Fund Performance Persist? Overview and New Empirical Evidence
Article first published online: 10 OCT 2008
© 2009 The Author Journal compilation © 2009 Blackwell Publishing Ltd
European Financial Management
Volume 15, Issue 2, pages 362–401, March 2009
How to Cite
Eling, M. (2009), Does Hedge Fund Performance Persist? Overview and New Empirical Evidence. European Financial Management, 15: 362–401. doi: 10.1111/j.1468-036X.2008.00471.x
- Issue published online: 2 MAR 2009
- Article first published online: 10 OCT 2008
- performance measurement;
- performance persistence;
- hedge funds
The contribution of this paper is to provide an overview and new empirical evidence on hedge fund performance persistence, which has been a controversial issue in the academic literature during the last several years. In the first step, we review recent studies and put them into a joint evaluation of hedge fund performance persistence. In the second step, the methodological framework developed in the overview is used to present new empirical evidence. We find different levels of performance persistence depending on the statistical methodology and the hedge fund strategy employed. In our study, performance persistence cannot be explained by the use of option-like strategies, but it can be partially explained by survivorship and backfilling bias. Differences among hedge fund strategies might be explained by return smoothing. Finally, we develop a rationale for choosing between different methodologies to measure performance persistence and conclude that the multi-period Kolmogorov-Smirnov test is the most useful for evaluating performance persistence of hedge funds.