The tournament hypothesis of Brown et al. (1996) conjectures that mutual funds with a below average performance over the first half of the year tend to increase their risk in the second half of the year. Schwarz (2012) argues that the methodologies that have been used to test this hypothesis are...

The tournament hypothesis of Brown et al. (1996) posits that managers of poorly performing funds actively increase portfolio risk in the second half of the year. At the same time, it is a well-established stylized fact that stock returns and the subsequent return standard deviation are...

We use a Markov chain model to evaluate pure persistence in hedge fund returns. We study two forms of pure persistence: absolute persistence and persistence with respect to the high water mark, accounting for the size of drawdowns. We find that hedge funds in general exhibit persistence in...