Enhanced estimates generate improvement in hedge funds

EDHEC-Risk Institute has conducted research looking at an application of the improved estimators for higher order co-moment parameters as they apply to the optimisation of hedge fund portfolios.

In the research paper published in the Winter 2012 issue of the Journal of Alternative Investments, entitled Optimal Hedge Fund Allocation with Improved Estimates for Coskewness and Cokurtosis Parameters, the authors find that use of these enhanced estimates generates a significant improvement for investors in hedge funds.

It is only when improved estimators are used and the sample size is sufficiently large that portfolio selection with higher order moments consistently dominates mean-variance analysis from an out-of-sample perspective, the paper finds.

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