Performance persistence of hedge fund: A result of different systematic risk exposure

Abstract

This paper has made the statement that the different systematic risk exposure style affects hedge fund performance and performance persistence. Employing maintain low systematic risk exposure (LSR) style leads superior performance for hedge fund during the full-time period. The outperformance of LSR style in this finding challenges the principle of standard Capital Asset Pricing Model (CAPM) and being supported by the “Low-volatility anomaly” in the equity market. However, the market timing, one of systematic risk exposure style, is still crucial and should be taken into consideration when managing portfolios systematic risk exposure, especially during the crisis period. Moreover, there is the evidence in support of performance persistence for all systematic risk exposure style. However, in the crisis period, the ability to time the market along with the ability to maintain low systematic risk exposure are proved to be necessary skills of fund managers to have the highest probability of repeating winner performance.