RT Journal Article
SR Electronic
T1 Building a Hedge Fund Portfolio with Kurtosis and Skewness
JF The Journal of Alternative Investments
FD Institutional Investor Journals
SP 25
OP 34
DO 10.3905/jai.2007.688991
VO 10
IS 1
A1 Mark J.P Anson
A1 Ho Ho
A1 Kurt Silberstein
YR 2007
UL https://pm-research.com/content/10/1/25.abstract
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