Higher-Moment Risk Exposures in Hedge Funds

45 Pages Posted: 5 Jun 2012

See all articles by Marie Lambert

Marie Lambert

University of Liege - HEC Management School

Georges Hübner

HEC Liège

Nicolas A. Papageorgiou

HEC Montreal - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: May 1, 2012

Abstract

The paper singles out the key roles of US equity skewness and kurtosis in the determination of the market premia embedded in Hedge Fund returns. We propose a conditional higher-moment asset pricing model with location, trading and higher-moment factors in order to describe the dynamics of the Equity Hedge (Market Neutral, Short Selling and Long/Short strategies), Event Driven, Relative Value, and Funds of Hedge Funds styles. The volatility, skewness and kurtosis implied in the US options markets are used by Hedge Fund managers as instruments to anticipate market movements.

Managers should adjust their market exposure in response to variations in the implied higher moments. We show that higher-moment premia improve a conditional asset pricing model both in terms of explanatory power (R-squares and Schwarz criterion) and specification errors across all Hedge Fund styles.

Keywords: Hedge Funds, Implied higher-moments, Conditioning factors

JEL Classification: G10, G12

Suggested Citation

Lambert, Marie and Hübner, Georges and Papageorgiou, Nicolas A., Higher-Moment Risk Exposures in Hedge Funds (May 1, 2012). Paris December 2012 Finance Meeting EUROFIDAI-AFFI Paper. Available at SSRN: https://ssrn.com/abstract=2078014 or http://dx.doi.org/10.2139/ssrn.2078014

Marie Lambert (Contact Author)

University of Liege - HEC Management School ( email )

HEC-Liège
rue Louvrex 14
LIEGE, Liege 4000
Belgium

Georges Hübner

HEC Liège ( email )

Rue Louvrex 14, Bldg. N1
Liege, 4000
Belgium
+32 42327428 (Phone)

Nicolas A. Papageorgiou

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Register to save articles to
your library

Register

Paper statistics

Downloads
101
Abstract Views
2,632
rank
105,758
PlumX Metrics