【Topic】Hedge Fund Performance Persistence over Different Market States

【Speaker】Ashley W. Wang，Economist and Senior Economist, Federal Reserve Board

【Time】 13:45—15:15, 2014-04-10，Thursday

【Venue】Room 406, Weilun Building, Tsinghua SEM.

【Language】English

【Organizer】Department of Finance

【Target Audience】Faculty Members and Graduate Students

【Background Information】

Ashley W. Wang is an Economist and Senior Economist of Federal Reserve Board. She got her Ph.D., Finance, at University of California - Los Angeles, 2003. Her research areas are Financial Stability, Systemic and liquidity Risk, Institutional Investors Behavior, Mutual Funds and Hedge Funds, Empirical Asset Pricing. Her Current Research Topics are Empirical Asset Pricing and Hedge Funds and Mutual Funds.

Abstract：

We provide novel evidence that hedge fund performance is persistent after periods of low hedge fund market returns but not after periods of high market returns. Specifically, we construct two performance measures, DownsideReturns and UpsideReturns, conditional on whether the overall hedge fund market is performing relatively poorly or strongly. After adjusting for risk and fund characteristics, funds in the highest DownsideReturns quintile outperform funds in the lowest quintile by 5% in the subsequent year, whereas funds with better UpsideReturns do not outperform subsequently. The finding suggests an error-in-measurement problem, which weakens the return predictability for unconditional average historical returns.