Author(s)

Demissew Diro Ejara

Department of Finance, University of New Haven, West Haven, CT, USA.

This paper compares performance of long-short equity hedge funds with the market index by using mean-variance criteria and criteria including higher moments. Based on the mean-variance criteria, the majority of the long-short equity hedge funds outperform the market index. When higher moments are used to evaluate the performance, a greater proportion of the hedge funds underperform the market index. This implies the importance of including higher moments in portfolio optimization.

Higher Moments, Investment, Hedge Funds, Financial Econometrics, Portfolio Performance Evaluation, Taylor Series Expansion, CRRA

Ejara, D. (2016) Evaluating Investments Using Higher Moments. Modern Economy, 7, 320-326. doi: 10.4236/me.2016.73035.