Abstract
Performance persistence analysis is important as it has a decisive influence on investor allocation decisions. Investors can use quasi-hedge funds’ persistence to build effective investment strategies. Thus, the paper explores performance persistence of quasi-hedge funds operating at the Polish capital market. The methodology is based on constructing the new market performance index intended only for absolute return funds. It is validated regarding absolute returns of Polish quasi-hedge funds. The Absolute Return Index (ARI) is used to rate quasi-hedge funds’ performance persistence in assessing their fundamental purpose: to deliver consistently positive returns in all market conditions. For this, their quarterly return rates are used. All 53 funds operating for at least 36 months and representing 48.2% of the entire segment of absolute return funds are analyzed. The use of ARI allows examining quasi-hedge funds’ performance persistence in terms of market changes and the assessment of their purpose. In the short term (6 months) profitability remained persistent, while in the long term (12 months) such a hypothesis could be refuted. More than 40% of funds showed positive persistence within six months; only positive persistence occurred in the short term. 9.4% of funds repeatedly obtained negative returns, so absolute return funds’ negative performance persisted neither in the short nor long term. Closed-ended investment funds showed much stronger persistence of above-average positive returns, which additionally tended to avoid repeating negative returns in two-quarter and four-quarter series. This confirms the assumption that in this respect the Polish market is similar to the developed ones.
Highlights
The segment of financial market related to the management of financial instruments has developed extremely rapidly
More than 40% of funds showed positive persistence within six months; only positive persistence occurred in the short term. 9.4% of funds repeatedly obtained negative returns, so absolute return funds’ negative performance persisted neither in the short nor long term
Positive ying the persistence of absolute return funds using and negative persistence both for the short and long the Absolute Return Index (ARI) as a specific fund periods was studied
Summary
The segment of financial market related to the management of financial instruments has developed extremely rapidly. One of its key elements is funds that actively manage client portfolios. Their operation largely depends on their capacity to achieve returns exceeding those achievable from investing in passive strategies. The hedge fund segment has grown rapidly over the last two decades offering investors unique investment opportunities that are exposed to more complex risks than traditional investments. Since the late 1990s, the dynamic growth of the hedge fund market has changed the structure of the modern financial market. The rationale for the study on the growth of the hedge fund market is high volatility in all segments of the financial market in the 21st century. Differently regulated, are regarded as best adapted to new financial market conditions due to their highest flexibility among all entities operating on this market
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