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Hedge Fund Performance & Higher-Moment Market Models

Angelo Ranaldo & Laurent Favre

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Kurzfassung The CAPM model is hard put to explain the superior performance of hedge funds in the past. We argue that the Markowitz mean-variance criterion underpinning the traditional CAPM may fail to capture systematic features characterizing hedge fund performance. Thus, we extend the twomoment market model to a higher-moment model to accommodate coskewness and cokurtosis. The higher-moment approach is more appropriate for capturing the non-linear relation between hedge fund and market returns and accounting for the specific risk-return payoffs of each hedge fund investment strategy. The key result is that the use solely of the two-moment pricing model may be misleading and may wrongly indicate insufficient compensation for the investment risk.
   
Typ Artikel (wissenschaftliche Zeitschrift)
   
Schlagwörter (Tags) Hedge Funds, Higher Moments, Skewness, Kurtosis, Coskewness, and Cokurtosis
   
Sprache Englisch
Art des Artikels Journal Artikel
Erscheinungsdatum 2005
Zeitschrift Journal of Alternative Investments
Verlag IIJ (New York)
DOI 10.3905/jai.2005.608031
Jahrgang bzw. Volume 8
Nummer bzw. Issue 3
Seite(n) 37-51
Review Double-Blind Review
   
Zitation Ranaldo, Angelo ; Favre, Laurent: Hedge Fund Performance & Higher-Moment Market Models. In: Journal of Alternative Investments 8 (2005), Nr. 3, S. 37-51, DOI:10.3905/jai.2005.608031.