Abstract
Controlling for the data-snooping bias, this study aims to identify all outperformers for periods prior to the outbreak of the sub-prime mortgage crisis and to test if any of these in-sample ‘real’ top hedge funds survived this credit crunch during the Jul. 2007 to Aug. 2008 (out-of-sample) period. We apply Fung and Hsieh’s seven factor model to retrieve the abnormal returns (or alpha values) of hedge funds of various categories across different sample periods. Using Romano and Wolf’s stepwise reality check to control for the data-snooping bias that would otherwise affect our results, we investigate whether ‘real’ top hedge funds abnormal returns (or alpha values) are persistent across the periods prior to and after the outbreak of the crisis. The monthly returns of 12,996 hedge funds from the HFR hedge fund database backdating to Jan. 1994 are examined and we find that some ‘real’ outperformers do generate a significantly positive alpha during the crisis, a result robust to the data-snooping bias.
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