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Higher‐moment Risk Exposures in Hedge Funds
Author(s) -
Hübner G.,
Lambert M.,
Papageorgiou N.
Publication year - 2015
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12054
Subject(s) - hedge fund , kurtosis , skewness , volatility (finance) , financial economics , equity (law) , econometrics , alternative beta , business , economics , hedge accounting , global assets under management , actuarial science , open end fund , institutional investor , finance , mathematics , statistics , corporate governance , political science , law
This paper singles out the key roles of US equity skewness and kurtosis in the hedge fund return generating process. We propose a conditional higher‐moment model with location, trading, and higher‐moment factors to describe the dynamics of the equity hedge, event‐driven, relative value, and fund of funds styles. If the volatility, skewness, and kurtosis implied in US options are used by fund managers as instruments to anticipate market movements, managers should adjust their market exposure in response to variations in these moments. We indeed show that higher‐moment premia improve the conditional asset pricing model across all hedge fund styles.