Evaluating Investments Using Higher Moments
Ejara, D.D. (2016) Evaluating Investments Using Higher Moments. Modern Economy, 7, 320-326.
7 Pages Posted: 31 Jan 2017
Date Written: March 24, 2016
Abstract
This paper compares performance of long-short equity hedge funds with the market index by using mean-variance criteria and criteria including higher moments. Based on the mean-variance criteria, the majority of the long-short equity hedge funds outperform the market index. When higher moments are used to evaluate the performance, a greater proportion of the hedge funds underperform the market index. This implies the importance of including higher moments in portfolio optimization.
Keywords: higher moments, investment, hedge funds, financial econometrics, portfolio performance evaluation, Taylor series expansion, CRRA
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