Resumen
This paper investigates the persistence of hedge fund managers skills during periods of boom and/or recession. We consider a data set of monthly investment strategy indices published by Hedge Fund Research group. The data set spans from January 1995 to June 2010. We divide this sample period into four overlapping sub-sample periods that contain different economic cycles. We define a skilled manager as a manager who can outperform the market consistently during two consecutive sub-sample periods. We first estimate outperformance, selectivity and market timing skills using both linear and quadratic Capital Asset Pricing Model-CAPM. Persistence in performance is carried out in three different fashions: contingence table, chi-square test and cross-sectional auto-regression technique. The results show that fund managers have the skills to outperform the market during periods of positive economic growth only. This market outperformance is due to both selectivity and market timing skills. These results contradict the Efficient Market Hypothesis-EMH due to limited arbitrage opportunity.