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Detecting Performance Persistence of Hedge Funds : A Runs-Based Analysis

Author

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  • Rania Hentati-Kaffel

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Philippe de Peretti

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper, we use nonparametric runs-based tests to analyze the randomness of returns and the persistence of relative returns of hedge funds. Runs tests are implemented on a universe of hedge extracted from HFR database over the period spanning January 2000 to December 2012. Our findings suggest that i) For about 80% of the funds, we fail to reject the null of randomness of returns, ii) A similar ...gure is found out when focusing on relative returns, iii) Hedge funds that do present clustering in their relative returns are mainly found within Event Driven and Relative Value strategies, iv) For relative returns, results vary with the benchmark nature (hedge or traditional). The paper also emphasizes that runs tests may be a useful tool for investors in their fund' s selection process.

Suggested Citation

  • Rania Hentati-Kaffel & Philippe de Peretti, 2014. "Detecting Performance Persistence of Hedge Funds : A Runs-Based Analysis," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00984777, HAL.
    • Handle: RePEc:hal:cesptp:hal-00984777
    Note: View the original document on HAL open archive server: https://paris1.hal.science/hal-00984777
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    References listed on IDEAS

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    1. A. Harri & B. W. Brorsen, 2004. "Performance persistence and the source of returns for hedge funds," Applied Financial Economics, Taylor & Francis Journals, vol. 14(2), pages 131-141.
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    3. Carpenter, Jennifer N. & Lynch, Anthony W., 1999. "Survivorship bias and attrition effects in measures of performance persistence," Journal of Financial Economics, Elsevier, vol. 54(3), pages 337-374, December.
    4. Agarwal, Vikas & Naik, Narayan Y., 2000. "Multi-Period Performance Persistence Analysis of Hedge Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 327-342, September.
    5. Posthuma, Nolke & Sluis, Pieter Jelle van der, 2003. "A Reality Check on Hedge Funds Returns," Serie Research Memoranda 0017, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    6. Carl Ackermann & Richard McEnally & David Ravenscraft, 1999. "The Performance of Hedge Funds: Risk, Return, and Incentives," Journal of Finance, American Finance Association, vol. 54(3), pages 833-874, June.
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    Cited by:

    1. Pavitra Kumar, 2015. "Hedge Fund Characteristics and Performance Persistence: Evidence from 1996–2006," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 5(02), pages 1-43.

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    Keywords

    Hedge Funds; Randomness; Runs Tests; Persistence; clustering;
    All these keywords.

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