Multi-period performance persistence analysis of hedge funds

Since hedge funds specify significant lock-up periods, we investigate persi stence in the performance of hedge funds using a multi-period framework in which the likelihood of observing persistence by chance is lower than in th e traditional two-period framework. Under the null hypothesis of no manager skill (no persistence), the theoretical distribution of observing wins or losses follows a binomial distribution. We test this hypothesis using the t raditional two-period framework and compare the findings with the results o btained using our multi-period framework. We examine whether persistence is sensitive to the length of return measurement intervals by using quarterly , half-yearly and yearly returns. We find maximum persistence at the quarte rly horizon indicating that persistence among hedge fund managers is short term in nature.