Hedge Fund Performance Persistence and Mixed Trading Strategies

Abstract

We examine US hedge funds’ performance persistence and mixed-trading strategies across both different economic and market conditions for 1990-2014. We use parametric and non-parametric models and we examine hedge fund persistence in various aspects. During “good” times there is smoothness in hedge fund (risk-adjusted) returns whereas during “bad” times this smoothness disappears. With respect to the market benchmark, with a few exceptions, there is no performance persistence. Concerning the persistence within each group of strategy, for “good” times we found persistence up to one year whereas for “bad” times we found up to six months. There is strong evidence that the persistence is driven mainly by the top performers, and recessions are harsher than down regimes for hedge fund persistence. Finally, we constructed mixed trading strategies and we introduce the zero investment portfolio “momentrarian” strategy that can bring conditional high excess returns to investors.