Moments Analysis in Risk and Performance Measurement

Publication Type

Journal Article

Publication Date

6-2006

Abstract

Noting that while hedge funds are well established in the United States and Europe, they have only begun to grow aggressively in Asia, the authors introduce a practical approach to analyzing the risk and performance of Asian hedge funds from the viewpoints of U.S. and Asia-Pacific based equity investors. They focus on the impact of including Asian hedge funds in these portfolios and examine whether the inclusion helps to insulate the overall portfolio when in down markets, capturing the upside and reducing the impact of market volatility during extreme events. They note that their approach alleviates the problems that can arise if hedge fund returns are skewed, leptokurtic, and non-linearly related to the market returns. They conclude 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 (defined as the lowest return quartile of the S&P 500). Their results also showed that very few of the funds provided downside protection, upside capture, and low volatility on the down-side. They also found that their results are sensitive to the choice of benchmark and conclude that this makes the methodology suitable for performance and risk measurement relative to existing investments.

Discipline

Finance and Financial Management

Research Areas

Finance; Quantitative Finance

Publication

Journal of Wealth Management

Volume

9

Issue

1

First Page

54

Last Page

65

ISSN

1534-7524

Identifier

10.3905/jwm.2006.628685

Publisher

Institutional Investor Inc

Additional URL

https://doi.org/10.3905/jwm.2006.628685

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