Sat, Aug 2, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
New Managers January 2013

Peter Urbani's Statistics - Co-Skewness worth 290bp

This month we look at the impact of different objective functions on the out-of-sample performance of optimised strategy allocations, and in particular of the important contribution of co-skewness to the overall skewness of the portfolio for those who care about higher moments

We show that the inclusion of higher moments to your portfolio construction process is worth +290 bp per annum over and above the performance of a broad Hedge Fund Index (Dow Jones Blue Chip Index). We also show that optimal weights for those who prefer higher odd moments (Mean, Skew etc.) are generally higher in the direction of those assets exhibiting positive relative skewness, or co-skewness, with either a benchmark or the portfolio itself. To illustrate, we conduct out-of-sample back testing on the 10 Main Dow Jones CSFB Blue Chip Hedge Fund Strategy Indices from Jan 2006 to Dec 2012. The initial look-back period is 24 months and rebalancing takes place bi-annually.

Objective functions used include; maximising the Sharpe ratio, which is equivalent to the classical minimum variance portfolio of Markowitz’s MPT, Maximising the ratio of the CAGR to both the normal, best fit and modified conditional value at risk (CVaR) or Expected Shortfall. This is sometimes called the STAR Ratio. As a control we compare the results to the benchmark index, and both a buy and hold and rebalanced equally weighted index.

The results show that the Modified and Best Fit methods outperform the Minimum Variance / Maximum Sharpe ratio method, the Benchmark Index and ......................

To view our full article please login

This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
New Managers
New Managers
New Managers

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: Kyria Capital Management bets on women hedge fund managers[more]

    Bailey McCann, Opalesque New York: As hedge fund assets top $3 trillion, and long/short strategies get more crowded than ever, with every manager hunting for even the tiniest bit of alpha, a new firm has emerged that claims its own edge – women. A recent Rothstein Kass study showed women-owned a

  2. Opalesque Exclusive: Q2, H1 end positively for hedge fund performance[more]

    Bailey McCann, Opalesque New York: New hedge fund monitor data from Citi Prime Finance shows that overall, hedge funds ended the month of June and the first half of the year positively. Composite hedge fund performance, equal-weighted across funds, ranged from +0.93% to +1.73%. June-14 performa

  3. Many CTAs have become more short-volatility in the last five years[more]

    Benedicte Gravrand, Opalesque Geneva: Quantitative easing has reduced and then suppressed volatility for the last five years. So analysts at R.G. Niederhoffer Capital Management recently examined if there had been a tendency for CTAs and hedge funds to adjust their styles to become more 'shor

  4. Other Voices: Event driven strategy outlook: Broader focus required[more]

    This article was authored by Alex Gavrish, founder and CEO of Etalon Investment Research, and author of "Wall Street Back To Basics."

  5. Other Voices: Not so easy to replicate activist hedge funds and achieve similar performance[more]

    This article was authored by Alex Gavrish, founder and CEO of Etalon Investment Research, and author of "Wall Street Back To Basics." With the amount of activist investments on the rise during the last few years, more and more media at