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

Suggested Citation

Ejara, Demissew Diro, Evaluating Investments Using Higher Moments (March 24, 2016). Ejara, D.D. (2016) Evaluating Investments Using Higher Moments. Modern Economy, 7, 320-326. , Available at SSRN: https://ssrn.com/abstract=2908739

Demissew Diro Ejara (Contact Author)

University of New Haven ( email )

300 Boston Post Road
Pompea College of Business
West Haven, CT 06516
United States
(203) 932-7150 (Phone)

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