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The Influence of Time Horizon on the Hedge Fund Performance Persistence

CBM 149

The author shows the main characteristics of hedge funds and analyzes persistence of rates of return generated by them. The aim of the paper is to check if there exists any persistence of rates of return and if so, if there are any differences in different periods of time. The paper proves that the existence of rates of return persistence decreases together with the extension of the time horizon. It suggests that long-term investing in hedge funds is linked to high risk levels. One reason is that their rates of return are not described by normal distribution features. The second is the low probability that their performance in one-year or longer periods of time can be repeated. On the other hand, hedge funds cannot be used as short-term investments because of lock-up periods caused by illiquidity of their assets. According to such conclusions, portfolio management for such alternative investments seems to be an art.