Moments Analysis in Risk and Performance Measurement

Kok Fai PHOON, Singapore Management University
D. Lee
C.Y. Wong


This article introduces a practical approach in analyzing the risk and performance of Asian hedge funds from the viewpoints of US equities investors benchmarked to the S&P 500 and regional equities investors benchmarked to a regional equity index. Based on a sample of 70 Asian hedge funds from the EurekaHedge database, the paper found that while all funds provided diversification in the sense that they were not perfectly correlated with market index returns, only 32% or 46% of the funds were negatively correlated with the S&P 500 index returns in a down-market. Results were consistent for cross moments when the S&P 500 was used, but perverse, for the MSAUCPI. These findings indicate that the methodology provide very different results depending on the benchmarks. Suitability of individual funds depends very much on the composition of the existing portfolio of investors.