Higher‐Moment Risk Exposures in Hedge Funds

29 Pages Posted: 13 Mar 2015

See all articles by Georges Hübner

Georges Hübner

HEC Liège

Marie Lambert

University of Liege - HEC Management School

Nicolas A. Papageorgiou

HEC Montreal - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: March 2015

Abstract

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.

Keywords: hedge funds, implied higher‐moments, conditioning factors

Suggested Citation

Hübner, Georges and Lambert, Marie and Papageorgiou, Nicolas A., Higher‐Moment Risk Exposures in Hedge Funds (March 2015). European Financial Management, Vol. 21, Issue 2, pp. 236-264, 2015. Available at SSRN: https://ssrn.com/abstract=2577044 or http://dx.doi.org/10.1111/eufm.12054

Georges Hübner (Contact Author)

HEC Liège ( email )

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

Marie Lambert

University of Liege - HEC Management School ( email )

HEC-Liège
rue Louvrex 14
LIEGE, Liege 4000
Belgium

Nicolas A. Papageorgiou

HEC Montreal - Department of Finance ( email )

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

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