TITLE:
Evaluating Investments Using Higher Moments
AUTHORS:
Demissew Diro Ejara
KEYWORDS:
Higher Moments, Investment, Hedge Funds, Financial Econometrics, Portfolio Performance Evaluation, Taylor Series Expansion, CRRA
JOURNAL NAME:
Modern Economy,
Vol.7 No.3,
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.