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Hedge fund performance and persistence in bull and bear markets

Author

Listed:
  • Daniel Capocci
  • Albert Corhay
  • Georges Hubner

Abstract

This paper tests the performance of 2894 hedge funds in a time period that encompasses unambiguously bullish and bearish trends whose pivot is commonly set at March 2000. The database proves to be fairly trustable with respect to the most important biases in hedge funds studies, despite the high attrition rate of funds observed in the down market. An original ten-factor composite performance model is applied that achieves very high significance levels. The analysis of performance indicates that most hedge funds significantly outperformed the market during the whole test period, mostly thanks to the bullish subperiod. In contrast, no significant underperformance of individual hedge funds strategies is observed when markets headed south. The analysis of persistence yields very similar results, with most of the predictability being found among middle performers during the bullish period. However, the 'Market Neutral' strategy represents a remarkable exception, as abnormal performance is sustained throughout and significant persistence can be found between the 20% and 69% best performers in this category, probably thanks to an extreme adaptability and a very active investment behaviour.

Suggested Citation

  • Daniel Capocci & Albert Corhay & Georges Hubner, 2005. "Hedge fund performance and persistence in bull and bear markets," The European Journal of Finance, Taylor & Francis Journals, vol. 11(5), pages 361-392.
    • Handle: RePEc:taf:eurjfi:v:11:y:2005:i:5:p:361-392
    DOI: 10.1080/1351847042000286676
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    More about this item

    Keywords

    Hedge funds; funds of funds; selection bias; abnormal returns; bullish market; bearish market; persistence;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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