Higher moment diversification benefits of hedge fund strategy allocation

Hedge Fund Strategy Performance: Using Conditional Approaches

The search for methodologies that accurately measure performance and performance persistence continues to evolve. This is especially true for investment strategies such as hedge funds, which have been shown, in several instances, to not be normally distributed. In this article, we evaluate performance of hedge funds using conditional approaches and GMM. Unlike the Sharpe ratio or Jensen’s alpha...

Strategy Distinctiveness and Hedge Fund Performance

Presumably, hedge fund managers pursue unique strategies because they have great new ideas and superior investment skills, while less skilled managers are more likely to herd and follow publicly known investment ideas. For investors, knowing how innovative and skillful their managers are is thus extremely important but very difficult because of the opaque nature of hedge fund operations. In thi...

Implications of Higher Order Risk Factors for Hedge Fund Performance

This paper investigates the performance of hedge funds adjusted for higher order risk factors. Traditional risk-adjusted performance measures are subject to size distorted in the presence of skewness and kurtosis. A residual augmented least squares approach to model higher order risk moments in returns allows us to estimate a robust risk-adjusted performance measure for hedge funds. In a compar...

Asset Allocation Dynamics in the Hedge Fund Industry

This paper examines asset allocation dynamics of hedge funds through conducting optimal changepoint test on an asset class factor model. Based on the average F-test and the Bayesian Information Criterion (BIC), we find that more dynamic hedge funds exhibit significantly better quality than less dynamic funds, signaled by lower return volatility, stricter share restrictions, and high water mark ...

Optimal Hedge Fund Allocation with Asymmetric Preferences and Distributions