Hedge Fund Performance Persistence: A New Approach

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...

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Bibliographic Details
Published in:Financial analysts journal 2008-11, Vol.64 (6), p.27-44
Main Author: Boyson, Nicole M.
Format: Article
Language:English
Subjects:
Age
Financial investments
Financial portfolios
Hedge funds
Investment advisors
Investment funds
Investment policy
Investors
Mutual funds
Performance Measurement and Evaluation
Portfolio management
Portfolio performance
Security portfolios
Statistical analysis
Statistical significance
Studies
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Summary: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.
ISSN:0015-198X
1938-3312
DOI:10.2469/faj.v64.n6.6