The performance persistence of equity long short hedge funds

Performance persistence measurement is a quantitative concept applied during the fund manager selection process, since financial allocations to different funds are, to a large extent, done on the basis of the funds’ historical track records. The importance attached to a track record implies that investors assume that performance persistence exists, and that winners (i. e., above average performers during a past period) continue to excel. Recognizing a pattern of performance persistence would enable investors to achieve superior investment results. Additionally, a greater clarity on the duration of performance persistence, if any, would offer information as to which investment strategy (e. g., momentum or contrarian) tends to be financially more rewarding. The aim of this study is to establish theoretically sound and practically useful concepts to evaluate performance and performance persistence of Equity long/short hedge funds. This study uses updated return data and closes, at least partially, an important research gap. In order to reduce model risk, various performance measurement methods are used as a basis for assessing persistence. Finally, this study demonstrates that only about one-third of all sampled funds were in a position to offer significantly positive alpha values. Furthermore, the study provides evidence that performance persistence is primarily a short-term phenomenon.