NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Hot Hands Exist Among Hedge Fund Managers? An Empirical Evaluation

Ravi Jagannathan, Alexey Malakhov, Dmitry Novikov

NBER Working Paper No. 12015
Issued in February 2006
NBER Program(s):   AP

We examine whether hot hands exist among hedge fund managers. In measuring performance persistence, we use hedge fund style benchmarks. This allows us to identify managers with valuable skills, and also to control for option-like features inherent in returns from hedge fund strategies. We take into account the possibility that reported asset values may be based on stale prices. We develop a statistical model that relates a hedge fund’s performance to its decision to liquidate or close in order to infer the performance of a hedge fund that left the database. While we find significant performance persistence among superior funds we find little evidence of persistence among inferior funds.

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This paper was revised on August 13, 2008

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Document Object Identifier (DOI): 10.3386/w12015

“Do Hot Hands Exist Among Hedge Fund Managers? An Empirical Evaluation.” forthcoming in Journal of Finance 2009

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