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Higher†moment Risk Exposures in Hedge Funds

Author

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  • G. Hübner
  • M. Lambert
  • N. Papageorgiou

Abstract

This paper singles out the key roles of US equity skewness and kurtosis in the hedge fund return generating process. We propose a conditional higher†moment model with location, trading, and higher†moment factors to describe the dynamics of the equity hedge, event†driven, relative value, and fund of funds styles. If the volatility, skewness, and kurtosis implied in US options are used by fund managers as instruments to anticipate market movements, managers should adjust their market exposure in response to variations in these moments. We indeed show that higher†moment premia improve the conditional asset pricing model across all hedge fund styles.

Suggested Citation

  • G. Hübner & M. Lambert & N. Papageorgiou, 2015. "Higher†moment Risk Exposures in Hedge Funds," European Financial Management, European Financial Management Association, vol. 21(2), pages 236-264, March.
    • Handle: RePEc:bla:eufman:v:21:y:2015:i:2:p:236-264
    DOI: 10.1111/eufm.12054
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    References listed on IDEAS

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    2. Almeida, Caio & Ardison, Kym & Garcia, René, 2020. "Nonparametric assessment of hedge fund performance," Journal of Econometrics, Elsevier, vol. 214(2), pages 349-378.
    3. Paul Karehnke & Frans de Roon, 2020. "Spanning Tests for Assets with Option-Like Payoffs: The Case of Hedge Funds," Management Science, INFORMS, vol. 66(12), pages 5969-5989, December.

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