Authors: Pascal Gantenbein, Stephan Glatz, Heinz Zimmermann
This paper investigates the performance of a sample of 4,788 hedge funds in bull and bear equity markets. Covering the period from January 1994 to December 2008, we find that the
explanatory power of the predictors is not constant over time, but each bull and bear market period has its dominant independent variables. Furthermore, the level of performance persistence is not significantly related to equity market conditions. Using contingency table test methodologies at an aggregate fund level, the analyses show that hedge fund performance persistence is stronger in more recent sub-periods than in earlier sub-periods.
In a bullish as well as in a bearish equity market, performance persistence is driven by both constant winners and losers. Moreover, we find that both live and dead funds exhibit statistically significant levels of performance persistence, but the persistence with dead funds is primarily driven by constant losers while with live funds driven by constant winners.
Keywords: equity markets, hedge funds, performance measurement, performance persistence