PT  - JOURNAL ARTICLE
AU  - Mark J.P Anson
AU  - Ho Ho
AU  - Kurt Silberstein
TI  - Building a Hedge Fund Portfolio with Kurtosis and Skewness
AID  - 10.3905/jai.2007.688991
DP  - 2007 Jun 30
TA  - The Journal of Alternative Investments
PG  - 25--34
VI  - 10
IP  - 1
4099  - https://pm-research.com/content/10/1/25.short
4100  - https://pm-research.com/content/10/1/25.full
AB  - Mean-Variance optimization has long played an important role in portfolio construction. These traditional methods have been applied to hedge funds, but recent research indicates that hedge fund return distributions are distinctly non-normal. That is, hedge fund return distributions exhibit considerable leptokurtosis and skewness. Consequently, traditional mean-variance optimization will lead to sub-optimal results. This article incorporates skewness and kurtosis into the hedge fund selection process and applies it to a “live” portfolio of hedge funds. The results show that multi-moment optimizations produced superior portfolios with higher Sharpe Ratios while explicitly accounting for kurtosis and skewness.TOPICS: Real assets/alternative investments/private equity, portfolio construction, statistical methods