A.I.R.A.P. - Alternative Views on Alternative Investments

INTELLIGENT HEDGE FUND INVESTING, Barry Schachter, ed., Risk Books, 2004

Posted: 7 Jul 2004

See all articles by Milind Sharma

Milind Sharma

QuantZ Capital Management LLC

Abstract

This paper investigates issues of risk-adjusted performance, value added and leverage for hedge funds. It applies AIRAP (Alternative Investments Risk Adjusted Performance), which is the power utility implied certain return that a risk-averse investor would trade off for holding risky assets, to hedge fund indices and individual hedge fund data. Inferences are made about the value added by hedge funds and the difference between directional and non-directional strategies. Evidence of non-normality, higher moment risks and the trade-off between mean-variance profile vis-a-vis skewness and kurtosis is noted across style categories. Further, survivorship bias is estimated across style categories in the first four moments.

Keywords: AIRAP, Hedge Funds, Certainty Equivalent, Skewness, Kurtosis

JEL Classification: D81, C40, G10

Suggested Citation

Sharma, Milind, A.I.R.A.P. - Alternative Views on Alternative Investments. INTELLIGENT HEDGE FUND INVESTING, Barry Schachter, ed., Risk Books, 2004 . Available at SSRN: https://ssrn.com/abstract=562082

Milind Sharma (Contact Author)

QuantZ Capital Management LLC ( email )

44 Wall St., 12th Floor
12th Floor
NY, NY 10005
United States

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